All's Well on the Western European Front? Not Exactly.


All is calm in Cyprus, but is that a bad sign?

Journalists seem to be outnumbering Cypriots standing in lines at banks in Nicosia. That's good news, right?

Maybe, but there may be consequences. In a note this week, Moody's said the lack of a strong reaction to Cyprus may make policymakers even more willing to go after bank creditors in the rest of Europe.

"In Cyprus, policymakers seem to have concluded that spillover effects to other banking systems, including the periphery, will be limited or can be contained," the ratings agency said. "We think the market's relatively muted reaction so far to these developments may embolden policymakers in the future should they feel contagion risks can be contained."

In fact, there is little panic over anything in Europe. No big worries that Italy can't form a government. And the other big worry this week — that Moody's may downgrade Italy's debt — also has not materialized, at least not yet. Moody's last downgraded Italy in July 2012 to Baa2.

But that doesn't mean it won't happen. Moody's may not have downgraded Italian debt yet, but they did say the Cyprus bailout was "credit negative for bank depositors across Europe." Save to mention for the rest of the euro area banks.

That, however, is the one panic that definitely has materialized: a rout in European banking stocks. Just look at the declines this month in some of these banks:

Alpha Bank (Greece) -31 percent

Bankia(Spain) -45 percent

Banco Popolare (Italy) -23 percent

Commerzbank (Germany) -19 percent

Unione di Banche (Italy) -16 percent

UniCredit(Italy) -12 percent

Banco Popular (Spain) -14 percent

Banco de Sabadell (Spain) -14 percent

That is the big takeaway from Cyprus. This is what we know for sure:

1) investors are re-calibrating bank valuations. They are asking at what risk premium should bank bonds trade, and at what multiples should bank stocks trade;

2) euro politicians have bailout fatigue;

3) The use of taxpayers to exclusively fund bailouts is over; and

4) The private sector (bank creditors, including senior bondholders and depositors) are now subject to bail-ins.

My take: I am not comforted by all this calm. Nor is Moody's: they warned that European government confidence that contagion from Cyprus could be contained "maybe misplaced."


1) China shares down almost 3 percent as restrictions have been imposed on wealth management products;

2) Pinnacle Foods (PF) priced 29 million shares at $20 each,high end of the range. Insiders own the stock at an average price of $8.19;

3) Quarter ending with U.S. outperforming. Another reason we are so calm. Only Japan, in the midst of a yen-devaluation frenzy (Bank of Japan meets next week), is doing better.

Global stock markets this year

S&P 500 Nine percent

Japan 18 percent

Germany Two percent

China -1 percen

Spain Two percent

Brazil -7 percent

By CNBC's Bob Pisani

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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