US Banks Face 'Contagion' Risk From EU Banks - In Short, Nothing Has Changed

My oh my, whatever will the poor 'ole banks do?

U.S. banks face a “serious risk” that their creditworthiness will deteriorate if Europe’s debt crisis deepens and spreads beyond the five most-troubled nations, Fitch Ratings said.

“Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,” the New York-based rating company said yesterday in a statement. Even as U.S. banks have “manageable” exposure to stressed European markets, “further contagion poses a serious risk,” Fitch said, without explaining what it meant by contagion.

The “exposures” of U.S. lenders to major European banks and the stressed nations of Greece, Ireland, Italy, Portugal and Spain, known as the GIIPS, are smaller than those to some of the continent’s larger countries, Fitch said.

The six biggest U.S. banks -- JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. and Morgan Stanley (MS) -- had $50 billion in risk tied to the GIIPS on Sept. 30, Fitch said. So-called cross-border outstandings to France for all except Wells Fargo were $188 billion, including $114 billion to French banks. Risk to Britain and its banks was $225 billion and $51 billion, respectively.

The Real Effect
A wise man once said -

This is not a recession, it is a depression. And a massive one at that. We are not at the bottom, we are on gaining momentum for the next plunge down. If you thought the last drop was bad, this one is going to strike fear into the hearts of men everywhere. The Dow will push through the last market low of 7,392.27, then 6000 and after that 3000. As capitol assets are ravished, what you will be seeing is the consumption of the golden goose in a proverbial feasting on the rotting carcass of the American consumer. If you disagree, ask yourself the following, what is holding US up?

We have proof of that final bold point here -

...banks feel compelled to level the kind of fees that alienate many consumers. "If you don't make a sufficient amount of money and don't have a good enough cash flow to maintain minimum balance, you might get hit with minimum balance fees or monthly fees," said Streit. "If you make $8 or $9 an hour, and you get with $70 in fees per month, that's painful."

$70 a month on a $500 deposit!?! That would be close to 100% annualized! (In easy speak, after a year of keeping your $500 at the banks, it would be GONE!) It really must be terrible for these banks to have to make a few data entries and then loan out that deposit at up to 300:1!!!

Nothing has changed. Nothing. Derivatives are still being sold in massive quantities, in part because the banks realize that you, the U.S. Taxpayer are the implicit backstop to their positions. Talk about moral hazard!