El-Erian: European Banks are in Major Trouble

Pimco’s Mohamed El-Erian says Europe could be thrown into a banking (NYSE:KBE) crisis. “(There) are signs of an institutional run on French (NYSE:EWQ) banks. If it persists, the banks would have no choice but to delever their balance sheets in a very drastic and disorderly fashion,” reports the Financial Times.

The report sent chills through Wall Street today and gave traders another reason to simply dump stocks.

Hot Feature: 7 Reasons the European Union has Economic Uncertainty.

“There has been a significant increase in the financial requirements of international intervention,” El-Erian said. “You need a lot more firepower in order to be a circuit breaker. Look at how much the ECB has put in and ask yourself the question: has it created a circuit breaker? The answer is no, even though the amounts involved have been massive.”

El-Erian’s statement comes after the IMF estimated the debt woes that have engulfed peripheral EU Nations could mean losses of over $410 billion for European banks with exposure to this debt. The banks will need to shore up capital adequacy to the extent of over $200 billion. Many banks will probably not be able to implement this without government help, says the IMF.

Keep your eye on European banks UBS (NYSE:UBS), Deutsche Bank (NYSE:DB), Barclays (NYSE:BCS), Royal Bank of Scotland (NYSE:RBS), Lloyd’s (NYSE:LYG), and Credit Suisse (NYSE:CS).

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