ING says Europe bank CDS wider than non-financials

LONDON (Reuters) - Credit derivatives spreads for the 16 banks in Europe's investment-grade index are trading wider than for non-financial corporate names as the region's bank casualties pile up, ING credit strategists said on Tuesday.

The bank constituents of the five-year investment-grade Markit iTraxx Europe index were at an average spread of 178 basis points for senior debt early on Tuesday, which compared with an average of 125 basis points for non-financial index constituents, ING calculated.

"Spread levels are extremely wide" after the bailouts of Dexia (DEXI.BR), Fortis (FOR.BR), Bradford & Bingley BB.L, Glitnir GLB.IC and Hypo Real Estate HRXG.DE, said ING credit strategist Maureen Schuller, making it expensive for banks to obtain financing.

"But if you look at names in the United States that are distressed, they are at levels above 1,000 basis points," she said.

Major banks including Barclays (BARC.L), UBS (UBSN.VX), Royal Bank of Scotland (RBS.L) and HBOS HBOS.L were in a range from 260 to 320 basis points.

Only three out of the 16 banks were trading tighter than 125 basis points -- Banca Monte dei Paschi di Siena (BMPS.MI), Intesa Sanpaolo (ISP.MI) and BNP Paribas (BNPP.PA), ING analysts said.

Trading of individual bank names is less liquid than for the market indexes, which can react quicker to changes in sentiment.

After widening modestly early in the day after the U.S. Congress rejected a proposed $700 billion (388 billion pounds) bailout, the indexes tightened on expectations that the subsequent drop in U.S. stocks would push the U.S. public and its lawmakers to come up with an alternative plan.

By 11:56 a.m., the 125-name Europe index was roughly unchanged on the day at about 122 basis points, according to Markit data.