European banks are over-loaded with sovereign debt from Euro-zone countries

1. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
Why you should not be long European banks?
I have indicated for a couple of months that I would not be long financial stocks despite
the fact that banks borrow at close to nil cost and invest in sovereign bonds which
provided a nice "riskless" spread. Holding Government debt is also advantageous with
respect to regulatory capital ratios, allowing more leverage.
Well, riskless? No, risky instead!
The graph below explains a lot about the vows of the banking sector across Europe,
particularly when compared to the US: more than 35% of outstanding Government
debt is held by banks (mainly European) vs. 15% of US Treasuries. The current
crisis outlines how risky this was and explain the panic mode of European leaders that
conducted to the EUR 750 billion rescue plan (still waiting for the detail of its
implementation ...): the objective was to save the European banking sector from collapse
more than saving Greece; the green light given to the ECB to buy European sovereign debt
in the secondary market was not only to reduce borrowing cost for PIIGS countries but
also to lower the pressure on banks by improving prices in the secondary market.
Source:
Natixis: Flash economics - Why is there a crisis in the euro zone, but not in the United
States?
http://cib.natixis.com/flushdoc.aspx?id=53163
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