U.S. Banks Threatened by Euro Contagion: Fitch

U.S. bank ratings face a threat from European contagion, according to a note from FitchRatings.

"Fitch believes that, unless the eurozone debt crisis is resolved in a timely and orderly manner, the broad outlook for U.S. banks will darken," the ratings company stated in a note published Wednesday.

While Fitch sees net exposure to stressed European countries including Greece, Ireland, Italy, Portugal, and Spain as manageable, the ratings firm notes that hedges are imperfect. Still, Fitch describes even gross direct exposures are manageable.

However, Fitch has other concerns.

"U.S. banks could be greatly affected if contagion continues to spread beyond the stressed European markets exposures to large European countries and banks are sizable. The ongoing economic and market effects are additional concerns," Fitch states in its report.

Fitch puts "cross-border outstandings" to France at $188n billion for the top five U.S. banks, including $114 billion to French banks at the end of the second quarter. U.K. exposure was $225 billion, including $51 billion to French banks.

Money market exposure presents additional risks, Fitch contends.

"Beyond direct exposure, money market funds (MMFs) affiliated with major U.S. banks have additional exposure. While not contractually required, banks oftentimes offer support to affiliated MMFs in the event of need for business/reputation reasons," Fitch's report states.

Of the top 10 U.S. money market funds three are tied to U.S. banks. Those three funds have $89 billion of exposure to European banks, accounting for 39% of tier one capital.

-- .Follow me on twitter.

>To order reprints of this article, click here: Reprints