Chart of the Day: European bank exposure to Greece

This chart comes from today’s Wall Street Journal article Bailout Needs Banks’ Help.

The article reads:

Seeking to head off a potentially destabilizing Greek default, European governments began the delicate task of convincing their major banks to voluntarily accept losses on their holdings of Greek debt.

In both Germany and France, finance-ministry officials met with representatives of their respective countries’ leading banks and insurers on Wednesday to discuss how banks would shoulder some of the cost of a second bailout of Greece, people familiar with the matter said.

The trick will be for the private sector to take losses on Greek bonds, without Greece being declared in default. If the banks are forced to accept the losses, ratings companies likely will declare a default. Even if the banks act voluntarily, Greece could still be considered in default on its debts.

As I said when discussing credit default swaps recently:

  • If CDS are not triggered by a soft restructuring, then we will see a bond exchange for Greece that extends maturities and cuts rates.
  • If CDS are definitely triggered by a soft restructuring (maturity extension and interest reduction), then governments need to get comfort on the exposure to CDS and Greek debt by their domestic institutions. If the exposure is manageable all around, the soft restructuring can proceed. If it is not, then another bailout from the EU/EFSF/IMF facility is coming – followed by recapitalizations in anticipation of an eventual restructuring.

The Europeans are clearly trying to get comfort on the exposure to Greece in their domestic financial institutions. And if they do get that comfort, we are going to see a soft restructuring. I expect this before year’s end.

On exposure to the periphery, also see:

Those posts give you a fuller picture of the principal amounts that are in play. S&P reckons 50-70% haircut for Greek debt restructuring. This would be the full amortised net present value loss of an eventual hard restructuring.


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.