Fitch: Here’s How Much European Banks Are Exposed to GIPs

Yesterday I wrote a post that had a graphic outlining exposure to the European Periphery. Here is a bit more detail courtesy of Fitch, the ratings agency. Note that they are using the acronym GIPs to signal that Spain is somewhat decoupled from Greece, Ireland and Portugal which have received IMF aid. Bu their inclusion here suggests Fitch still sees residual risk there as well.

With a handful of exceptions — notably the Greek banks themselves — major European commercial banks’ exposure to Greek sovereign risk is not by itself large enough to justify some market concerns over the bank solvency implications of some kind of Greek restructuring or rollover event. Foreign bank holdings of Irish and Portuguese sovereign debt are also generally modest.

However, with several of Europe’s largest banks still repairing balance sheets and rebalancing funding profiles, Fitch Ratings’ primary concern about Greece, Ireland and Portugal (GIPs) would be the risk of a disorderly contagion spiral, evidenced by a sharp increase in creditor risk aversion to European banks. Most major European banks have used the past two years to enhance solvency and bolster liquidity. They would at least face such a situation with considerably better balance sheets than during the market closure that followed the Lehman Brothers default in 2008.

I question the assertion that the banks have better balance sheets. Otherwise, this is in line with what I have said. Beyond that, I will let the research speak for itself. It is embedded below. This offers further evidence that a Greek restructuring would not be catastrophic. However, momentum amongst policy makers seems to be coalescing around the bailout route (again).


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.