‘Greece-Like Risk’ for Financials: McDonald

There's good reason to short bank stocks, Newedge Senior Director Larry McDonald said Wednesday.

"What's disturbed me the last two or three days is the short interest on the XLF has broken out to multi-month highs, its highest level since last spring," he said on CNBC's "Fast Money."

McDonald said that he was shorting the financials and had been recommending the trade to clients.

"The main reason why is: What we've seen since Lehman is credit leads equities, and the CDS of the big banks the last two weeks is consistently wider with the XLF flat," he said. "We saw this in 2011. We saw this just before Lehman. We saw this in 2012.

"It's a problem because a lot of players in the credit side maybe are seeing something over in Europe."

Credit default swap spreads signaled what was ahead, McDonald said.

"I'm going to follow credit, and equities'll follow."

McDonald also looked to Portugal.

The Iberian nation's banks, he added, "have no room for error."

"If deposits leave the top five banks and then the government has to fill that capital hole, that's a substantial risk," he said. "It's a Greece-like risk facing us in the coming months."

Trader disclosure: On April 3, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Enis Taner is long BIDU CALL SPREAD; Enis Taner is long TSLA CALL SPREAD; Enis Taner is long FXE PUTS; Enis Taner is long MSFT PUTS; Enis Taner is long XLF PUTS; Enis Taner is long GS; Enis Taner is long GS PUT SPREAD; Enis Taner is short YHOO call spread; Pete Najarian is long AAPL; Pete Najarian is long JPM CALLS; Pete Najarian is long BBRY; Pete Najarian is long SBUX; Pete Najarian is long MSFT; Pete Najarian is long AMZN CALLS; Steve Weiss is long BAC; Steve Weiss is long C; Steve Weiss is long AIG; Steve Weiss is short AKS; Steve Weiss is short BHP; Steve Weiss is short VALE; Steve Weiss is short RIO; Joe Terranova is long VRTS; Joe Terranova is long SJM; Joe Terranova is long AXP; Joe Terranova is long KORS; Joe Terranova is long GS; Joe Terranova is long SWN.