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.