IFR ANALYSIS: BNP Paribas, Barclays, SG, Commerz most exposed to PIGS
BNP Paribas, Barclays, Societe Generale and Commerzbank are the non-domestic banks most heavily exposed to a flaring-up of the sovereign debt crisis affecting Greece, Ireland, Portugal and Spain, holding between them more than €40bn in the countries’ bonds.
French bank BNP Paribas is by far the most exposed to the sovereigns, according to an IFR analysis of stress test data released by the European Banking Authority this week, with substantial bond holdings in each of the four affected countries (see table).
The firm has more than €13.1bn in gross exposure, about two-thirds of which is held in the lender’s banking rather than trading book. It has a €5.24bn gross exposure to a Greek government default, €4.98bn exposure to Spain, €2.3bn exposure to Portugal and €629m holding of Irish paper.
Still, the holdings are only a fraction of the firm’s balance sheet, equivalent to around 2.2% of BNP Paribas’ total risk-weighted assets. The firm has no substantial retail businesses in the four countries, reducing its exposure further, but also raising questions as to why it accumulated such positions.
“While a sovereign default may be unlikely, it would almost certainly blow a large hole in BNP’s balance sheet,” a Morningstar team of equity analysts led by Erin Davis wrote following the publication of EBA stress tests results. BNP Paribas passed all the authority’s adverse scenarios.
Insiders at the firm told IFR that the exposure was limited in proportion to the size of the bank, and underlined the fact that BNP Paribas’ corporate and retail credit exposure in those countries was also small compared to other firms. The firm also pledged last year not to sell off Greek bonds.
Parisian rival firm Societe Generale, which by contrast to BNP Paribas does have a Greek retail subsidiary, also ranked high on the exposure charts. It has €9.5bn of exposure on its books, including a €4.75bn exposure to Spain and €2.84bn of Greek debt. It is the biggest holder of Irish sovereign debt.
“SocGen is highly leveraged with an equity/assets ratio near 4%, leaving it little room for error,” added the Morningstar analysts. “In the event of a major eurozone crisis, like a Greek default, SocGen would likely need to raise more equity capital.” Exposures are 2.8% of RWAs.
Meanwhile, Commerzbank and Barclays also have heavy exposures. The German firm has €8.1bn (3% of RWAs), predominantly in Greek and Spanish debt. Barclays is the biggest holder of Spanish debt – the bank has substantial retail operations there – and total exposure of €10.9bn (2.4% of RWAs).
The figures were released by the European Banking Authority, in collaboration with the banks, and detail the gross direct long exposures of each firm – a figure which includes banking and trading book positions, as well as indirect sovereign exposures on the trading book.
All banks cited passed the EBA’s stress tests.