Since Lehman Brothers went down on September 15th of 2008, European bank stocks have become remarkably correlated to their credit default swaps (CDS) according to Goldman Sachs.

Pre-Lehman, these stocks might have traded in reaction to a host of factors such as loan growth, market share, interest margins, etc.

But these days it’s almost as if they simply trade in relation to their probability of defaulting:

Goldman:

Since that day, sovereign and bank CDS have virtually moved in tandem – particularly so since the start of the Euro-zone fiscal crisis in late ‘09. But, as we have argued in some of our recent research, what has changed is the causality. In the immediate post-Lehman period, markets fretted about the solvency of financial institutions; the swings in sovereign CDS were very much an artifact of the worry about how a systemic banking sector shock would impact the sovereign. However, with the Euro-zone fiscal crisis, the causality seems to have mostly reversed.

Reprinted with permission from Business Insider