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4-European banks shaken by Greek debt exposure May 9, 2010

Posted by Yilan in EU, European Union, Human rights abuses, Yunanistan.
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The cost of protecting European bank debt against default reached levels not seen since the height of the economic crisis in 2009, with bank shares falling as Greece’s funding problems revived fears over financial sector stability.

Despite several banks reporting good results, Europe’s bank sector fell to a 10-month low on Friday as investors worried about Greece’s debt and whether it would spread to the rest of the euro zone. The index .SX7P closed down 3.75 percent at 186.05 points, after hitting 183.6, its lowest level since July.

Credit Agricole (CAGR.PA), HSBC (HSBA.L) and Royal Bank of Scotland (RBS) (RBS.L) were the latest banks to disclose details of their exposures, and several euro zone banks pledged to keep billion of euros in credit lines open.

“We have always warned that the world does not spring effortlessly from despair to triumph, and there will be aftershocks,” RBS Chief Executive Stephen Hester told reporters on a conference call, after the bank reported a return to profit in the first quarter.

Germany’s Finance Ministry outlined 8.1 billion euros ($10.9 billion) of credit lines and bond rollovers it will maintain to help keep Greece afloat. [ID:nBAT005421]

In a parallel step, German institutions agreed to provide Athens up to 4.8 billion euros for bonds or other forms of finance due to mature by May 6, 2013.

French banks, the most exposed to Greece, were among the biggest fallers in the market, with BNP Paribas (BNPP.PA) ending the session down 5.7 percent, Credit Agricole (CAGR.PA) down 7.2 percent, and Societe Generale (SOGN.PA), along with Belgium’s KBC (KBC.BR), down more than 8 percent.

Santander (SAN.MC), BBVA (BBVA.MC) and Barclays (BARC.L) both ended down 3.75 percent and RBS (RBS.L) was down 5.7 percent. HSBC shares ended the session up 0.2 percent at 648 pence, after falling as low as 618p.

German banks have around $45 billion in exposure to Greece, the second-biggest exposure after France. [ID:nLDE63R0Y1]

Germany’s nationalised lender Hypo Real Estate [HRXGe.DE] has around 39.2 billion euros exposure to sovereign debt in the PIIGS countries of Portugal, Italy, Ireland, Greece and Spain, with 7.8 billion euros of this to Greece.

Germany’s contribution is part of a “European convoy”, which included peers in France and Austria agreeing to keep their Greek exposure, but it failed to quell growing unease about Greece’s debt crisis, which caused stocks worldwide to plunge. [ID:nSGE64608F]

The deal for a private-sector contribution from financial institutions includes Deutsche Bank (DBKGn.DE), insurer Allianz (ALVG.DE) and reinsurer Munich RE MUNVGn.DE.

The Markit iTraxx senior financial credit default swap index widened by 26 basis points to 203 basis points and some 57 bps above the iTraxx Europe investment-grade index. French banks have been especially hard hit by their exposure to Greece, with Credit Agricole revealing a total exposure to Greece of 3.8 billion euros, excluding private-sector funding at its unprofitable Greek subsidiary Emporiki, in which it bought a two thirds stake in 2006. [ID:nLDE6460CW]

Credit Agricole five-year CDS was highly volatile and were 27 bps wider at 245 basis points near the end of Friday, having reached 250 bps earlier.

UK banks have also been affected and UK sovereign CDS moved sharply wider Friday morning too on expectations of a hung parliament after the election.

Royal Bank of Scotland five-year CDS widened by 41 bps to 237 bps, and HSBC five-year CDS moved to 125 bps, Markit said.

HSBC said it had about 1.5 billion euros ($2 billion) of Greek sovereign debt, and was comfortable with its exposure. RBS said it held 1.5 billion pounds ($2.3 billion) of Greek government debt, which suffered fair value losses of 430 million pounds up to the end of April.

The main risk it faced was that problems spread to other countries to derail economic growth, the bank said.

“It’s right that markets have an uncomfortable reminder that it is not plain sailing from here … and we have to live through that volatility until the economic balances around the world have been dealt with,” said RBS chief Hester.

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