Market sees no Lehman-like moment in Greece

June 16, 2012, 12:36 AM UTC

Fortune — Not too long ago investors were running scared from any investment that seemed remotely tied to Europe. Now, on the eve of a Greek vote that could throw the continent’s finances into question again, U.S. investors are blowing off the idea that Europe’s a major risk. The S&P 500 is rebounding from its May pummeling. Another Lehman Brothers. No way. The prevailing line these days is that a Greek exit from the Euro would be “manageable.”

Yesterday I was talking to a hedge fund manager who used to trade the shares of large-cap financial stocks. To say he is a cautious guy would be an understatement. Back in the mid-1990s, he warned me about the dangers of securitization, the process that created subprime mortgage bonds and CDOs and many of the other “innovations” that led to the financial crisis. Yet, when another trader recently brought up MetLife’s (MET) significant holdings of bonds tied to Greece, Portugal and some of Europe’s other weaker financial nations, he said he mostly dismissed the guy. “They’ve known about the risk for two years,” he says. “You’re telling me they haven’t dealt with it?”

MORE: Europe’s darkest clouds hang over Italy

And that appears to be the presumption running the market right now. Since we have known about Greece and the European debt crisis for at least a year now, and really much longer than that, MetLife and others have surely acted to protect themselves. But have they? The risk is that the market is presuming that MetLife and others have done more than they actually have.

Large U.S. banks, for instance, have mostly sold off or hedged nearly all of their exposure to Greece. But they have recently been increasing their exposure to Italy and France. So they are protected if Greece defaults. But if that leads to a wider run on European banks, large U.S. banks could still lose billions.

MORE: Why I’m Betting on Europe

Money market funds, another source of European worry last summer, are eliciting fewer concerns than they were a year ago. About three-quarters of the assets under management at Federated Investors (FII) are in money market funds. Nonetheless, shares of the company are up 43% this year.

Federated, like other money market fund managers, has cut the European exposure of its prime money market funds from 45% a year ago. At 21%, though, Federated has more invested in Europe than any of its competitors. None of the 10 Wall Street analysts who follow Federated are currently recommending the stock. Still, it appears most of the analysts’ worries are related to pending money market regulatory changes, not fears about Europe.

“We’ve been stressed on Europe three times in the past five years,” says Credit Suisse analyst Craig Siegenthaler, who gives Federated’s shares an “underperform” rating.  “Investors are less worried about European commercial paper exposure this time around.” Siegenthaler says it would be very hard for Federated’s money market funds to have major losses. You would have to have a Lehman-like event, he says. And that’s exactly the point.