The signs for Banks over the next few months is distinctly negative. I’d expect the strong ones to take advantage of the situation, and maybe we will see some surprising new alignments between Banks.

FT.com / In depth – Investors fear another big financial firm failure

Nearly 60 per cent of US and European institutional investors surveyed by Greenwich Associates believe there will be such a failure within the next six months. Another 15 per cent think it will happen in six-12 months.

“Most institutions think we are currently in the most dangerous period for global financial services firms,” said Frank Feenstra, a consultant at Greenwich Associates. “Perhaps if the markets can make it through the next six months, the level of pessimism may begin to subside.”

The survey of 146 institutions by Greenwich Associates, to be published this week, included banks, hedge funds, investment managers, mutual funds and pensions funds in the US, Canada and Europe.

In particular the recent decision by ML to sell off some of their sub prime stuff at a crazy discount has darkened the Banking sector. Its worthwhile remembering that even though sub prime is a problem, that those loans are secured by real estate which will not be worth zero. Its hard to imagine it will only be worth 78c.

They said the writedowns were partly driven by Merrill Lynch’s decision to sell $6.7bn in toxic securities to Lone Star funds, the distressed debt investor, for just 22 cents on the dollar.