U.S., Euro Stocks Crumble on Fears of New Crisis

ECB Chairman Jean-Claude Trichet announced the central bank’s intention to resume bond purchases, but traders reported purchases of Irish and Portuguese debt only, leading some to doubt the ECB’s ability to support weakness in the far weightier Italian and Spanish debt.

The latest crisis was evident on Tuesday when Spanish and Italian 10-year-bond yields crossed the dangerous 6% threshold. After initial hope of stronger ECB action had been dashed, Spanish and Italian bond yields ended the day near their record danger-zone highs reached earlier in the week.

In stock markets, European banks led the decline, signaling investors may be worried about a problem potentially greater than the insolvency of European nations and may be shifting concerns to the substantial concentrations of toxic sovereign debt held by Europe’s banks. As European sovereigns weaken, so too does the capital position of Europe’s banks erode.

Italy’s Unicredit and Intesa banks declined by more than 9% and 10%, respectively, Thursday, and Lloyds, Barclays, Royal Bank of Scotland and Societe General were among the day’s biggest decliners.

The New York Times cited a Sanford Bernstein report issued Wednesday that shows “UniCredit’s exposure to mostly Italian bonds is 121 percent of its core capital ratio. For Intesa, a less-diversified competitor, that figure rises to 175 percent. For Spain, the ratios are no less daunting: a startling 193 percent for BBVA, Spain’s second-largest bank, and a less alarming 76 percent for the global banking giant Santander.”

Meanwhile, the U.K.’s Guardian reported a “silent run” on Greek points, where savers using their cash to pay off debts or are stuffing their euros in safe-deposit banks. Financial blogger Megan McArdle reported Italian banks are having trouble tapping into credit markets and notes that Lehman Brothers had about another week when it had reached that stage in 2008.