Brexit Blowback Hits Italian and Spanish Banks

Worst Day ever for Italian & Spanish stocks. Banks massacred.

On Friday the prophets of Project Fear reaped what they’d sown, as financial carnage spread across global markets on news that a slim majority of British voters had done the unthinkable by drowning out the relentless doomsaying and voting to leave the European Union.

The pound sterling plunged 8% against the dollar, to $1.37, its lowest level in three decades. The euro fell 1.93%, in itself a huge one-day move for a major currency. UK stocks surrendered over 3% of their value. But that was nothing compared to the havoc unleashed in other European stock markets.

Germany’s DAX plummeted 7%; France’s CAC 40 over 8%. But even that pales compared to what happened in Spain and Italy: the IBEX 35 plummeted 12.3% and the FTSE MIB 12.5%. It was their worst day on record.

The UK economy may be in for a hellishly bumpy ride in the months and years ahead, but the fact that London’s FTSE 100 was Europe’s least worst performing stock market on this day of all days suggests that Europe’s biggest financial risks probably lie elsewhere. And that is in euro land, in particular on its southern flank.

The unpalatable truth, as even the former governor of the Federal Reserve, Alan Greenspan, conceded today, is that the euro “is failing”:

It is a very serious problem in that the southern part of the euro zone is being funded by the northern part and the European Central Bank.

Another serious problem (on which Greenspan was somewhat less forthcoming) is Europe’s swelling ranks of heavily leveraged, scantily capitalized, bad-loan bedeviled, zombified banks. It was they whose stocks plunged the most today. Despite the fact that central bankers around the world, led by the Bank of England’s Mark Carney, the ECB’s Mario Draghi and the Federal Reserve’s Janet Yellen, had pledged to print into existence countless billions of pounds, euros and dollars in a last-ditch attempt to backstop Europe’s crumbling financial system, the EU Stoxx 600 Banking index plummeted 14.5%.

By far the worst of the fallout hit Italy and Spain’s financial sectors, where the banks saw their market capitalization decimated by roughly a fifth

Continue reading the article at WOLF STREET

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