Three years after the collapse of Lehman Brothers Holdings Inc., financial shares in Europe are under assault, the cost of insuring bank debt is at records, and bankers see worrying parallels to that time.
A Bloomberg index of European financial stocks is running near its lowest levels since March 2009, while a measure of banks' reluctance to lend to each other was at the highest since April of that same year.
The chief executive of Deutsche Bank AG, Josef Ackermann, said Monday that market conditions remind him of late 2008 and urged lawmakers to act to avoid a repeat of the financial crisis, which spawned the worst global recession since the Great Depression.
Investors drove yields higher on the bonds of Greece, Portugal, Spain and Italy Monday on doubts Europe's leaders would be able to stop the sovereign debt contagion.
"Investors are not only asking themselves whether those responsible can summon the necessary willpower to overcome this crisis, but increasingly also whether enough time remains and whether they have the needed resources available," Ackermann said at a conference in Frankfurt. "As long as uncertainty holds whether the agreements can be quickly and fully implemented, the nervousness on the market will remain."
Demands led by Finland for collateral for new Greek loans, deteriorating economic growth in Europe and the U.S. and wavering commitment to austerity packages from euro members such as Italy risk derailing efforts to contain the crisis.
This "is not just a financial crisis," UniCredit CEO Federico Ghizzoni said in Frankfurt Tuesday. "For the first time, the European system is really at stake."
The disarray in financial markets will raise pressure on finance ministers and central bankers from the Group of Seven nations to take further steps when they meet in Marseille, France, on Sept. 9 and 10.
"If there's not a clear political direction to find a solution for Europe's problems, then we will enter a very difficult market situation," said Wolfgang Kirsch, head of DZ Bank AG, Germany's biggest cooperative lender, in an interview at the Frankfurt conference Monday.
Stock markets are "likely to keep going lower unless governments step in, in a big way," said Lex van Dam, a London fund manager at Hampstead Capital LLP, which oversees $500 million.
The collapse of Lehman Brothers of New York froze credit markets and forced taxpayer-funded bailouts of banks from Washington and London to Berlin.
At that time, the concern was over U.S. mortgage-backed securities. This time, it's about the bonds of Europe's debt-ridden governments.
"The situation is much more dramatic than in 2008," Ulrich Schroeder, head of Germany's state-owned development bank KfW Group, said at the Frankfurt conference Monday.
Many countries wouldn't be in a condition to rescue their lenders in a similar crisis because of their deficit problems, he said. "The banks aren't out of the danger zone."
Many European banks "obviously" wouldn't be able to shoulder writedowns on sovereign debt held in their banking books based on market values, Ackermann said. Greek two-year notes traded Monday at less than 50% of face value.
Still, measures taken by the European Central Bank have made it possible for banks to finance their operations even when other banks and investors have cut off funding, preventing a credit freeze similar to the one that followed Lehman Brothers' collapse, DZ Bank's Kirsch said.
The ECB, in Frankfurt, provides euro-area banks with unlimited liquidity in its refinancing operations, and started buying Italian and Spanish government bonds on Aug. 8 to stem a market rout.
The difference between the three-month euro interbank offered rate and the overnight indexed swap rate is still less than half the peak in October 2008, according to Bloomberg data.
"Europe is at a crucial moment, and if we are to survive this, northern countries like Germany need to step up and support the weaker members, something they just don't want to do," said Neil Phillips, a fund manager at BlueBay Asset Management PLC in London, which oversees about $45 billion.
