European Banks Are Standing on One Leg $DB $CS $UBS $XLF

· Europe & European banks – one of the big stories of the day was the situation in Europe, where CDS spreads widened and stocks slumped.

Some of the items being talked about:

1) Ireland’s CDS (5yrs) burst out 40bp today (to 374bp), setting fresh wides again.  The market is concerned about further costs associated w/the bailout of the nation’s banks – Anglo Irish remains a huge overhang, as does the pending expiration of the government debt guarantee (it winds down later this month and investors are skeptical about whether banks can roll this paper).  Ireland has already spent EU33B bailing out its banks (20% of the country’s GDP);

2) The Macquarie profits warning provided the first piece of tangible evidence that capital markets activity has been slow for the major global banks in Q3.  Bloomberg published an article this morning discussing how the sector will require an “off the charts Sept” in order to hit guidance and the sell-side has been bringing down ests.  Note that JPMorgan is going to be hosting a conf call Wed morning 9:30amET to review our view of the global IBs;

3) The unexpected mgmt shakeups at Barclays and HSBC today is prompting some concerns that both firms may be preparing to leave London due to draconian British regulations that could be announced in the coming weeks;

 4) Some hesitation ahead of the new Basel capital rules being set (there was a meeting today on Basel although we will have to wait until this Sunday for a final announcement)) - press reports indicate German banks in particular could be hurt by the new regs (Germany's 10 largest banks may have to raise more than EU100B in capital under the new Basel rules);

5) Capital raisings by companies – after Europe closed, the National Bank of Greece (NBG) said it would launch a EU2.8B equity capital raising (the market is worried about more supply coming to market; recall the FT reported last week that Deutsche Bank and Commerzbank were considering equity sales); there has also going to be a ton of supply on the FI side – Bloomberg reported how Commerzbank and Unicredit are leading EU8B worth of European bank bond sales…the article adds that banks in total have ~EU250B in paper to refinance by the end of the year;

6) Capital raisings by countries – the FT overnight discussed how EU nations plan on ramping up their debt sales in Sept;

7) Renewed doubts about the European bank stress tests – a WSJ article today raised questions about the credibility of the tests.