Position: Long Sweden (EWD); Short Italy (EWI), and Euro (FXE)
Below we include a portion of a product offering from our Financials’ team, the Weekly Risk Monitor for Financials, that tracks CDS across global banks. The table below covers major banks throughout Europe and the trend week-over-week was down, with a mean move of -18bps or -5.4%. As a follow-up to a post we wrote on Sweden on 2/2 titled “Buying Swedish Fish”, Swedish banks maintain their relatively low risk premium, a further positive indicator of present strength and additional confirmation that fears associated with their past leverage to the Baltic states are rearview.
Spain, on the other hand, and despite a positive (downward) move in CDS week-over-week, remains on our screens due to the uncertainty in the size and timing of the government’s bid to capitalize (or convert) its lenders.
You’ll remember that late last month Spain’s government set a September 2011 deadline for lenders to raise their core capital ratios to 8% (or 10% for the cajas, or savings banks). Finance Minister Elena Salgado said that Spanish banks require no more than €20 Billion of extra capital to meet these targets, however Moody’s estimated the number as high as €89 Billion. Although the country has a bank-rescue fund, known as FROB, there’s still much uncertainty about the absolute value in funding needed and the ability of the lenders, especially the cajas, to raise debt in the market.