Concerns about the health of the U.S. economy continue to fester among investors, but Wednesday's stomach-churning stock market decline is largely related to events in Greece - and those concerns are being manifested in the moves among bank stocks. As in, they are down sharply.
Moody's Investors Service cut Greece's credit rating by three notches earlier in the month, amid the rising likelihood that the country will default on its debt. The ratings agency has now set its sights on banks with exposure to Greek debt - particularly French banks BNP Paribas, Société Générale and Crédit Agricole -- putting all three on review for possible downgrade.
The concerns stem from the fact that Crédit Agricole controls Emporiki Bank of Greece and Société Générale controls a majority stake in Greece's Geniki Bank. Meanwhile, Moody's noted that BNP Paribas is at risk from its direct holdings of Greek government debt.
Of course, the bigger concern - fed partly by violent street protests in Greece and offers from Greek leadership to step down - is that a default could spread the pain far and wide. Banks with substantial European operations were hit the hardest: Royal Bank of Scotland fell 4.2 per cent in New York, Barclays PLC fell 4 per cent and UBS AG fell 3.3 per cent. Among U.S. banks, Bank of America Corp. fell 2.7 per cent and JPMorgan Chase & Co. fell 2.3 per cent.
By comparison, the declines among Canadian banks were relatively mild: Toronto-Dominion Bank fell 1.8 per cent, Bank of Nova Scotia fell 1.4 per cent and Royal Bank of Canada fell 1.2 per cent.