It seems like there's always another shoe to drop with banks. The latest: the arrest of International Monetary Fund (IMF) head Dominique Strauss-Kahn on sexual assault charges.
How will that impact banks? There is thought to be a correlation between contributions to the IMF and the price of U.S. bank stocks. The theory is that investors expect IMF money to be used to repay debts to banks.
Strauss-Kahn was once a finance minister of France and played a critical role in the European Union's efforts to deal with the recent financial crisis. Now, he's now being denied bail and accused of a pattern of sexual misconduct spanning years.
With Strauss-Kahn announcing his resignation today, the IMF is left with a scandal and potential leadership vacuum at a time national governments are looking for places to cut spending. The IMF had named its second-in-command, John Lipsky, as acting president. But earlier this month, Lipsky had already announced his resignation effective in August.
Exposure to IMF funds -- and funding cuts -- goes hand-in-hand with international exposure at big U.S. banks. Citigroup
Bank of America's
Wells Fargo
Foolish takeaway
If IMF funding is indeed cut, or the European rescue stalls, that could add to the already-blustery earnings headwinds at Citigroup, BofA and JPMorgan.
Are there more shoes to drop with banks? Fee income is under pressure. Loan demand could remain weak for years. Real estate continues to struggle. Excluding "provisions" (one-time items and unsustainable loan losses), banks' pre-provision profits are in trouble. The value of assets on their books is suspect. Potential IMF funding cuts are just one more issue for investors to weigh.
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