Global Market Commentary

February 11, 2016

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Europe’s Banks Are Showing Cracks 

We’ve been expressing our worry about the health of the European banking system for years.  Starting in 2012, many European banks relied on “CoCos” — contingent convertible bonds — in an attempt to shore up their balance sheets.  Now, as market fear begins to price in the conversion of those bonds into equity, European bank stocks are enduring a ferocious decline.  We continue to believe that when another crisis arises, it may well emanate from Europe, unless the European Central Bank takes strong measures to recapitalize European banks in a sound way.

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