When you lie down with dogs….
Amazing revelations from Bloomberg that JP Morgan Chase has the biggest exposures to the PIIGs (Portugal, Italy, Ireland, Greece and Spain), totaling $36.3 billion, or 28% of the firm's Tier-1 capital which banking analysts use as a measure of financial strength. The note from Wells Fargo analysts says JP Morgan Chase has lent these European basket cases so much money, it's the equivalent of 69% of its Tier One capital.
The level of bank exposure to bad loans will raise fears of the United States and Britain being dragged into Europe's debt spiral. Banks have such massive exposure that there are worries this will spark a global crisis similar to that which happened after the investment bank Lehman Brothers collapsed in 2008.
The other big concern is that credit spreads are going to become more volatile which will make it more expensive for the banks to raise money in global markets. That means banks will be even less likely to lend business and home buyers money. The credit crisis will continue for some time which means don't expect a recovery any time soon. If there was going to be a recovery, Europe blew that out of the water.
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