Carol Wed Sep 14, 2011 12:38 pm
September 14, 2011 – PARIS – Where now for European banks? Sir Howard Davies, former chairman of Britain’s Financial Services Authority, said on BBC Radio’s Today program on Tuesday morning that he thought the French government was only days away from having to recapitalize the country’s banking system for a second time. Italy had to pay the highest spread since joining the euro to sell its bonds on Tuesday. There are growing fears over whether Europe’s largest borrower can stay the course. The Eurozone sovereign debt crisis is meanwhile exacting a devastating toll on the European banking system as a whole, the UK included. With their high exposure to Eurozone debt, the problem is particularly acute for the French banking goliaths, BNP Paribas and Societe Generale. BNP alone has a Eurozone sovereign debt exposure of some €75bn, amounting to roughly 6pc of total assets, including €14bn of Greek debt and €21bn of Italian government bonds. And that’s just BNP. The other two major French banks, SocGen and Credit Agricole each have exposures of a similar order of magnitude. Collectively, French banks have €56bn of Greek sovereign bonds alone. They’ve so far only written down this Greek debt by around 20pc, or in line with the restructuring agreed at the time of the last bailout. That’s nowhere near mark to market. In the increasingly likely event of Germany kicking the Greeks out of the Eurozone altogether, Greek debt will become close to worthless. Greece is already effectively a cash only economy. Most forms of credit has effectively dried up, the Greek banking system is finished, and capital controls to prevent what little money that remains from leaving the country are surely only a matter of time. European banking must prepare for the worst as far as Greece is concerned. As for the remainder of the Eurozone sovereign exposure, there’s been no write down at all among banks on these bonds. If there’s a wider problem of default, the bad debt recognition has yet to come.-Telegraph
http://blogs.telegraph.co.uk/finance/jeremywarner/100011929/europes-banks-are-starring-into-the-abyss/