By Anita Raghavan, Forbes

European bank stocks are sending an ominous signal: They are trading as if a default by Greece is not a question of “if” but one of “when”? The Bloomberg Index of 52 European bank stocks has fallen from a high of 126.11 on April 15 to a low of 98.62 on June 8.

Though the index has rebounded somewhat, closing Thursday at 104.72, only one of the components of the index—a small Swiss bank called Valiant Holding—has managed to post a gain since April 15. ETF investors can see the damage done in the SPDR S&P International Financial Sector (IPF) fund.

Among the hardest hit are Greek banks like Eurobank EFG which has plunged 41.24%, National Bank of Greece which is down 29.27% in euro terms and Alpha Bank—not the Russian one—which has tumbled 30%. A number of better-known European banking names have gotten crushed along the way too. France’s Credit Agricole has tumbled nearly 37% in euro terms, Societe Generale, also of France, is off almost 28% and Dexia is down 28%.

While Greece has been touting its efforts to cut its massive deficit in recent days, the issue for Greece is that the moves it is taking are unlikely to help the country this year, says Stephen Pope, chief global equity strategist at Cantor Fitzgerald in London. Pope expects that Greece’s deficit as a percentage of gross domestic product is likely to surge this year to 150% from 120% currently. The deficit-cutting measures “cannot be implemented this year,” says Pope. “It is just kicking the tin can further” into the future.

Pope says if all the PIIGS countries –an acronym which refers to Portugal, Ireland, Italy, Greece and Spain—had to restructure their debts, it would result in about 900 million to 1 billion euros in writedowns. “The banks can’t handle that,” says Pope.
U.S. banking stocks has also been trading lower since mid-April. The Standard & Poor’s 500 financials group and its tandem SPDR Financial Sector ETF have fallen 15.3% since April 14 with only six of the component banks racking up gains.

Unlike in Europe, the worst performers aren’t institutions that are perceived to have big lending businesses in Southern Europe. Investment bank Goldman Sachs, which was close to the bottom in terms of performance during the period, has seen its shares get whacked because the Securities and Exchange Commission on April 16 charged Goldman and one of its vice presidents with fraud. The charge is in connection with the sale of a synthetic collateralized debt obligation that was tied to the performance of subprime residential mortgage-backed securities.