Fitch Warns Eurozone Contagion Poses Big Threat to U.S. Banks; Market Shudders

November 16, 2011 4:44 PM EST
An afternoon report from Fitch Ratings discussing the firm's view that Eurozone contagion poses a threat to the rating outlook for U.S. banks was blamed for the afternoon sell-off in stocks.

The Dow closed off 190 points, the Nasdaq fell 47 and the S&P 500 fell 21.

Fitch said "U.S. banks have manageable direct exposures to the stressed European markets (Greece, Ireland, Italy, Portugal and Spain), but further contagion poses a serious risk."

Unless the Eurozone debt crisis is resolved in a timely and orderly manner, the credit outlook for U.S. bank could worsen, Fitch warned.

The firm noted most of the exposure in Europe for the large U.S. banks is with large European countries versus the stressed markets like Greece, Ireland, Italy, Portugal, and Spain.

On the hedging of European exposure by banks through the credit default swap (CDS) market, Fitch warns this could prove problematic if "voluntary" debt forgiveness becomes more prevalent and CDS contracts are not triggered.

Discussing large U.S. bank exposure to stressed European markets, Fitch notes Bank of America (NYSE: BAC) has $13 billion in net exposure, Citi (NYSE: C) has $16.3 billion, JPMorgan (NYSE: JPM) has $15.1 billion, Wells Fargo (NYSE: WFC) has $3.1 billion, Goldman Sachs (NYSE: GS) has $2.5 billion, and Morgan Stanley (NYSE: MS) has $3.4 billion.

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