LONDON/PARIS (Reuters) – Rising tension over a planned rescue of Greece continues to dog bank stocks across Europe, as worries about a wider fallout outweigh confidence that losses on Greek debt should be absorbable.
German and French banks are heavily exposed to Greece and they have been among those hit hardest by worries that Europe is struggling to get a grip on the crisis, the impact could be more damaging than thought, and the risk it could spread.
“Banks are going to be volatile going forward … markets are pushing the EU to make a decision, rather than dithering and procrastinating as they have done for such a long space of time,” said Shailesh Raikundlia, analyst at MF Global.
Shares in Franco-Belgian lender Dexia fell as much as 10 percent on Thursday as concerns grew about its exposure to Greece as Athens struggles to resolve its crisis.
Shares of Portugal’s BCP have lost 8 percent in the last two days, while Credit Agricole , Societe Generale and BNP Paribas have all lost over 4 percent after Moody’s said it may downgrade them due to their exposure to Greece.
Credit Agricole and SocGen have tumbled over 9 percent this month, helping drag Europe’s bank index <.SX7P> down 7 percent.
Fears of a Greek default have raised credit protection costs across the sector. Credit spreads have widened for both senior and unsecured debt, with the iTraxx senior financials index widening by 2 basis points to 179 bps early on Thursday, after surging 16 bps wider on Wednesday.
Many analysts and economists believe Greece is bound to default on its debt sooner or later, and this week’s lack of progress in Athens and across Europe has further shaken investors.
A second bailout plan for Greece under discussion for the first time includes the involvement of private sector investors sharing the burden on a voluntary basis, promoted by Germany’s government.
REAL WORRY
Even a big “haircut” on sovereign debt exposure would be manageable for overseas banks, analysts reckon.
But loans to Greek shipping firms and elsewhere in the private sector would increase the pain, and the real worry is the precedent it sets for Ireland, Portugal and even Spain.
Nout Wellink, governing council director of the European Central Bank, told a Dutch newspaper a new Greek aid package may require a doubling in Europe’s bailout fund, stoking fears the crisis will spread to other eurozone countries.
A lack of clarity on exposure to Greece is also adding to the uncertainty swirling around the industry.
Data from the Bank for International Settlements (BIS) shows French and German banks have the most exposure to Greek debt, with French banks having $56.7 billion (35.2 billion pounds) exposure at the end of last year (including $15 billion of government debt), while German banks had $34 billion (including $22.7 billion of government debt).
Together French and German lenders accounted for 62 percent of the $146 billion of international exposure, according to the BIS, which charts cross-border lending.
The BIS does not break down the data for individual banks, but analysts at CreditSights estimate Portugal’s BCP has a 5.6 billion euro exposure to Greece, the highest proportionate exposure of any single overseas lender.
Credit Agricole has a 21.7 billion euro exposure, thanks to its Emporiki Bank subsidiary.
Other banks with exposures of between 4 and 6 billion euros to Greece, through sovereign debt or private loans, are Dexia, BNP Paribas and SocGen, CreditSights analysts estimate, although they say data is sketchy.
The transfer of Greek exposure from Hypo Real Estate to Germany’s state-backed bad bank has cut the exposure of private sector lenders there, they said.
(Editing by David Holmes)
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