Bank Stocks Hit by Belgium Downgrade: What Investors Need to Know

What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you should do.

The cold, hard facts
Financial Times is reporting that Moody's (NYS: MCO) has downgraded Belgium's sovereign credit rating by two notches, from Aa1 to Aa3, with the outlook remaining negative. The ratings agency cited uncertainty over the country's political future and the risks that a shrinking national balance sheet would pose to its banking system as the reasons for the downgrade.

Some context
Fellow debt rater Fitch had earlier placed a number of eurozone countries on "rating watch negative." The list includes Belgium, Spain, Slovenia, Italy, Ireland, and Cyprus. In its statement, however, Fitch was careful to note that the euro area as a whole would remain triple A, and that France remained triple A, despite revising the country's individual outlook to "negative."

Though market reaction was overall subdued, major bank shares were down, including Bank of America (NYS: BAC) , Citigroup (NYS: C) , Wells Fargo (NYS: WFC) , and Goldman Sachs (NYS: GS) .

What you need to know
Despite the recent eurozone summit and the resulting agreement to further tighten up economic authority out of Brussels, the markets are still unsure of what's going to finally become of the eurozone and the euro. Big bank stocks, even here in the states, are being affected simply because investors still don't know exactly how much exposure any of these banks have to collapsing eurozone sovereign debt.

Until Europe gets sorted out, the most Foolish financial course is to limit your own exposure to the continent as much as possible, especially to any of the big banks, i.e., banks that are most likely to have eurozone sovereign debt exposure. Bank balance sheets are notoriously difficult to read in the best of times, which these most certainly are not.

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At the time thisarticle was published Fool contributorJohn Grgurichloves the smell of newsprint in the morning, but he owns no shares of any of the companies mentioned above.The Motley Fool owns shares of Bank of America, Wells Fargo, and Citigroup. The Fool owns shares of and has created a covered strangle position on Wells Fargo.Motley Fool newsletter serviceshave recommended buying shares of The Goldman Sachs Group and Moody's. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a scintillatingdisclosure policy.

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