Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. While I do make mistakes, I try hard to do my analysis thoroughly, and to make sure my data are correct (old habits die hard!) Also, don't ask me why I called it "Volewica". It's too late, now.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Monday, June 20, 2011

Bank Exposure to Greece

This chart comes from an article by the BBC.

It's misleading in that a big chunk of the French exposure is through Credit Agricole's subsidiary Emporiki.

A Greek default is unlikely to much affect bank capital according to this WSJ article.  But ... a public sector default (unless it's a massaged default, otherwise known as a restructuring) will lead to big private sector problems, so the problem is prolly worse than they say.

All the same, whereas the Lehman's failure was a case of it being OK on Friday and gone on Monday, its real problems being known to only a few in the market, this whole Greek default has given everybody time to factor in the worst case scenarios.  Everybody knows that Greece is in trouble, and how much each bank could lose.  It's unexpected shocks like the Lehman failure which cause big falls in markets, not those problems which have been common knowledge for many months,

As I pointed out a couple of days ago, Greece is in a much worse position than Ireland and Portugal.   To some extent Greec is sui generis.  So there will most probably not be contagion.  And, should Greece have a disorderly default instead of a managed one (i.e., a restructuring) the ECB will lend enough money to the German and French banks to stop them folding.  This is definitely not a Lehman moment, despite the chatter.   What it does mean though is that bank lending growth in Europe will be constrained, and so, therefore, will economic growth.  But we knew that already.

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