"The financial world is awash with theories as to how significant the Second
Greek Bailout is. I’m far less concerned with this (the Bailout accomplishes
nothing of import and only puts off the coming Greek default by a short period).
Instead, I think it much more important to ascertain the true exposure to Greek
sovereign debt.
And what better place to start than the banking system of the one country that is playing hardball with Greece during this latest round of negotiations: Germany.
First off, the reports concerning German bank exposure to Greek debt are anything but reliable. For instance, according to the Bank of International Settlements German bank exposure to Greece is only $3.9 billion (though they state this is only on an immediate borrower basis).
This is a bit odd as according to The Guardian German banks have nearly 8 billion Euros’ worth of exposure to Greek debt. And they only include 11 German banks in their analysis. However, of those 11 banks, THREE of them have Greek exposure equal to more than 10% of their total outstanding equity.
Source: Guardian datablog
Let’s consider Commerzbank as an example. Let’s say Greece defaults and creditors get 20 cent on the dollar (this is likely wishful thinking). This means Commerzbank now faces 2.3 billion Euros’ worth of write-downs on its Greek holdings… which means it’s wiped out 21% of its entire equity… which pushes its leverage levels through the roof and most likely renders it totally insolvent (there is no way Greece is the only toxic junk this bank owns).
Mind you, I’m just doing back of the envelope analysis here. But this might explain the following story:
And what better place to start than the banking system of the one country that is playing hardball with Greece during this latest round of negotiations: Germany.
First off, the reports concerning German bank exposure to Greek debt are anything but reliable. For instance, according to the Bank of International Settlements German bank exposure to Greece is only $3.9 billion (though they state this is only on an immediate borrower basis).
This is a bit odd as according to The Guardian German banks have nearly 8 billion Euros’ worth of exposure to Greek debt. And they only include 11 German banks in their analysis. However, of those 11 banks, THREE of them have Greek exposure equal to more than 10% of their total outstanding equity.
Source: Guardian datablog
Let’s consider Commerzbank as an example. Let’s say Greece defaults and creditors get 20 cent on the dollar (this is likely wishful thinking). This means Commerzbank now faces 2.3 billion Euros’ worth of write-downs on its Greek holdings… which means it’s wiped out 21% of its entire equity… which pushes its leverage levels through the roof and most likely renders it totally insolvent (there is no way Greece is the only toxic junk this bank owns).
Mind you, I’m just doing back of the envelope analysis here. But this might explain the following story:
Berlin May Have to Nationalize Giant
Commerzbank
… If Commerzbank CEO Martin Blessing could make
one wish, he would presumably ask for a few billion euros, or that someone would
take the bank's ailing subsidiary Eurohypo off his hands, or that the entire
sovereign debt crisis would simply disappear..."
