French banks would be the first to bear the brunt of an outflow of Greece in the euro zone, Credit Agricole in mind, according to research by Credit Suisse. In the case of contagion leading to discontinuation of the single currency in Portugal, Spain and Italy, the bill would amount to € 360 billion for 29 major institutions of the continent. This is only an estimate … A victory of the leftist Syriza Greek parliamentary elections on Sunday to give a cold sweat many European leaders, Angela Merkel the first. But more especially to the bankers, for whom a waiver of the single currency by Greece would result in significant losses.
The “Grexit” would cost 32 billion euros to leading European banks
For 29 major European institutions, the total bill for an output of Greece in the euro area (Grexit) would amount to 32 billion euros, according to a study published Wednesday, June 13 by Credit Suisse says that only take into account a contagion “limited” to other countries in the area in case of realization of this scenario. Value, BNP Paribas will pay the highest note with a salt loss of 4.4 billion euros, followed by Credit Agricole (3.8 billion) and Societe Generale (2.8 billion).
However, in proportion to their assets, the green bank would be most affected and would melt its equity by 13% against 6% for BNP Paribas. For the entire industry in Europe, rather well prepared for this event, the market capitalization fall by “only” 5%. As assumptions, Credit Suisse analysts have simulated including impairment of Greek bonds and those of other troubled countries in the euro area resulting from a “Grexit”.
The output of Greece to other countries in trouble
An abandonment of the single currency in Greece is definitely in effect ruled out. For if the party led by Alexis Tsipras, the most likely candidate in the latest polls wishes to maintain the country in the euro area, it does not make a priority. However, in case of non compliance with austerity measures and therefore drop the memorandum as required by Syriza, the IMF could do more to help Athens. Tensions also appear in Europe and push the Union to give up his turn to support Greece. The country’s banks would very quickly and the Greek state bankruptcy, insolvency, would be countered to return back to the drachma to recapitalize its banking system and pay its employees.
Worst case scenario: 15 to 38 billion loss for French banks
But soon, the markets could not release the pressure on other countries in the euro area, forcing Portugal, Ireland, Spain and Italy in turn to leave the eurozone. A worst-case scenario also simulated by the research teams of Credit Suisse that evoke “significantly greater consequences.” And for good reason, the 29 institutions tested would then face a loss of 360 billion euros, or 38% of total equity or 58% of the market capitalization they represent.
Logically, banks located in countries that come out of the eurozone would suffer. Economic losses were 22.7 billion and 22.5 billion for Santander in Spain for BBVA and it would cost 19.6 billion at Unicredit in Italy. But the Spanish Banco Popular and the Italian Intesa San Paolo would not survive without government intervention.
This event would also be a disaster for French institutions with losses of 15.3 billion for Societe Generale, Credit Agricole for 21.9 and 38.3 billion for BNP Paribas.