French exposure to Greece, an Argentine deja vu

Posted by Joseph Cotterillon Jun 15 08:52.

The Economist, Buenos Aires, 2002:

[Spanish] banks will be the hardest hit. Through the subsidiaries of BBVA and SCH—they own respectively Banco Frances and Banco Rio, Argentina’s second- and third-largest banks—the Spanish banks control a fifth of Argentina’s banking system. They are exposed to over $2 billion-worth of government debt apiece…

Moody’s Investors Service, Paris, 2011:

Paris, June 15, 2011Moody’s Investors Service has today placed the standalone financial strength ratings and long-term debt and deposit ratings of three French banking groups — Credit Agricole SA (CASA), BNP Paribas SA (BNPP), and Societe Generale SA (SocGen) on review for possible downgrade.

Today’s actions reflect Moody’s concerns about these banks’ exposures to the Greek economy, either through direct holdings of government bonds or credit extended to the Greek private sector directly or through subsidiaries operating in Greece, a key factor for CASA and SocGen due to their local Greek banks. The magnitude and composition of these exposures differ substantially across these banking groups.

Moody’s add that they’ll be looking at banks in other jurisdictions to review for downgrades following the agency’s cutting of Greece to Caa1 recently.

Not wholly unexpected for them to start with French banks first though.

Those Greek subsidiaries of Credit Agricole and SocGen (Emporiki and Geniki respectively), which we’ve delved into before, wouldn’t last long without funding lifelines from their parents in a Greek default. By contrast exposure to defaulted Greek bonds is small for Credit Agricole (€600m to core tier 1 capital of €50.8bn: Emporiki’s loan book totals €21bn) although bigger for SocGen, says Moody’s:

Similarly to Credit Agricole SA, SocGen has a majority stake in a local bank, General Bank of Greece (Geniki), and thus faces risks from its private sector credit exposures in the country (Geniki reported a net customer loan book of EUR3.4 billion at 31 March 2011, of which we understand a material proportion relates to multi-national companies, compared to SocGen’s consolidated Core Tier 1 capital of EUR29.4 billion)… However a default or restructuring of Greek government bonds would be more material for SocGen than it would be for CASA, given SocGen’s exposure to Greek government debt, reported to be EUR2.5 billion net as at 31 March 2011, although we understand that this exposure has since been reduced.

One question here, by the way — how could SocGen possibly have reduced Greece exposure in any significant way after March 2011? Liquidity in Greek bonds (and hedging via CDS we guess) has collapsed in recent months.

Still, worth noting that Moody’s says BNP Paribas had €5.6bn in net exposure compared to tier 1 common equity of €56.6bn, while Franco-Belgian bank Dexia (already on review for downgrade by Moody’s before Greek exposure) possessed €3.5bn of gross exposure to Greek sovereign debt in its held-to-maturity book.

For now, the Argentina parallels go on…

Related links:
Spanish banks take lead in Argentine bond swap – Business News Americas (2001)
French banks back Greek rollover in principle: report – Reuters (2011)

This entry was posted by Joseph Cotterill on Wednesday, June 15th, 2011 at 8:52 and is filed under Capital markets. Tagged with , , , , , , , , .

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