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Stephen Pope is the founder and Managing
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Euro's Underbelly Is Junk

Wednesday July 6th 2011

European banks are under pressure from 2 fronts this morning. Both prongs of
attack are rooted in the problematic periphery.

Firstly, Moody's have downgraded Portuguese debt to "junk" and so not only are
Portuguese banks under pressure, other investors will have to dump the assets as
they are below investment grade.

Moody’s downgraded Portugal’s credit rating to Ba2 late yesterday as the nation joined
Greece as the second euro-region country with a non-investment grade rating.

The rating agency will be criticised by politicians, but not by me as the prospect of a second
bailout is real - it is a financial clear and present danger.

Secondly, in Paris the matter of a Greek debt rollover is being discussed and it
being judged a blatant move by French banks to preserve their credit rating.
Just another quick-fix. Eventually, the sticking plaster will come unstuck. Soon
it will be a case of "Bankaid" not "Bandaid" that is required.

Have we learned nothing from the duck and cover antics of Sub Prime?

With these developments can we expect a further dilution of the asset book quality at the
ECB?
Surely they will have to continue taking Portuguese debt. Even if acquired
at a deep haircut someone has to stand and be truthful...

JUNK IS JUNK and one rotten bond will spoil the entire portfolio!

Stephen Pope July 6th 2011

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