28 Nov, 2011, 01.56AM IST, New York Times
World's biggest banks brace for a Euro Zone split
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|BNP Paribas|Barclays CapitalPARIS: While European leaders still say there is no need to draw up a Plan B, some of the world's biggest banks, and their supervisors, are doing just that. "We cannot be, and are not, complacent on this front," Andrew Bailey, a regulator at Britain's Financial Services Authority, said this week. "We must not ignore the prospect of a disorderly departure of some countries from the euro zone."
Banks including Merrill Lynch, Barclays Capital and Nomura issued a cascade of reports this week examining the likelihood of a breakup of the euro zone. "The euro zone financial crisis has entered a far more dangerous phase," analysts at Nomura wrote Friday. Unless the European Central Bank, or ECB, steps in to help where politicians have failed "a euro breakup now appears probable rather than possible," the bank said.
Major British financial institutions, like the Royal Bank of Scotland (RBS), are drawing up contingency plans in case the unthinkable veers toward reality, bank supervisors said Thursday. US regulators have been pushing American banks like Citigroup and others to reduce their exposure to the euro zone. In Asia, authorities in Hong Kong have stepped up their monitoring of the international exposure of foreign and local banks in light of the European crisis.
By contrast, banks in big euro zone countries that have only recently been infected by the crisis do not seem to be nearly as flustered. Banks in France and Italy in particular are not creating backup plans, bankers say, for the simple reason that they have concluded it is impossible for the euro to break up.
Although banks like BNP Paribas, Societe Generale, UniCredit and others recently dumped tens of billions of euros worth of European sovereign debt, the thinking is that there is little reason to do more. "While in the United States there is clearly a view that Europe can break up, here, we believe Europe must remain as it is," said one French banker, summing up the thinking at French banks. "So no one is saying, 'We need a fallback'," said the banker, who was not authorised to speak publicly.
When Intesa Sanpaolo, Italy's second-largest bank, evaluated different situations in preparation for its 2011-13 strategic plan in March, none were based on the possible breakup of the euro, and "even though the situation has evolved, we haven't revised our scenario to take that into consideration," said Andrea Beltratti, chairman of the bank's management board.
Beltratti said that banks would be the first bellwether of trouble in the case of growing jitters about the euro, and that Intesa Sanpaolo had been "very careful" from the point of view of liquidity and capital. In late spring, the bank raised its capital by 5 billion, one of the largest increases in Europe. Beltratti said that Italy, like the European Union, could adopt aseries of policy measures that could keep the breakup of the euro at bay.
The main danger of a euro breakup, said Stephen Jen, managing partner at SLJ Macro Partners in London, is "redenomination risk," the unpredictable effect that a euro breakup would have on financial assets as newly created currencies sought their own levels in the market and the value of contracts drawn up in euros came into question. Most people hope that will not happen. "Remember when Lehman went bankrupt - nobody could anticipate what happened next," said the French banker who was not authorized to speak publicly. "That was a company, not a country. If a country leaves the euro - multiply the Lehman effect by 10."
World's biggest banks brace for a Euro Zone split
StoryComments (2)Post a commentEmail this articleMail This Article
|BNP Paribas|Barclays CapitalPARIS: While European leaders still say there is no need to draw up a Plan B, some of the world's biggest banks, and their supervisors, are doing just that. "We cannot be, and are not, complacent on this front," Andrew Bailey, a regulator at Britain's Financial Services Authority, said this week. "We must not ignore the prospect of a disorderly departure of some countries from the euro zone."
Banks including Merrill Lynch, Barclays Capital and Nomura issued a cascade of reports this week examining the likelihood of a breakup of the euro zone. "The euro zone financial crisis has entered a far more dangerous phase," analysts at Nomura wrote Friday. Unless the European Central Bank, or ECB, steps in to help where politicians have failed "a euro breakup now appears probable rather than possible," the bank said.
Major British financial institutions, like the Royal Bank of Scotland (RBS), are drawing up contingency plans in case the unthinkable veers toward reality, bank supervisors said Thursday. US regulators have been pushing American banks like Citigroup and others to reduce their exposure to the euro zone. In Asia, authorities in Hong Kong have stepped up their monitoring of the international exposure of foreign and local banks in light of the European crisis.
By contrast, banks in big euro zone countries that have only recently been infected by the crisis do not seem to be nearly as flustered. Banks in France and Italy in particular are not creating backup plans, bankers say, for the simple reason that they have concluded it is impossible for the euro to break up.
Although banks like BNP Paribas, Societe Generale, UniCredit and others recently dumped tens of billions of euros worth of European sovereign debt, the thinking is that there is little reason to do more. "While in the United States there is clearly a view that Europe can break up, here, we believe Europe must remain as it is," said one French banker, summing up the thinking at French banks. "So no one is saying, 'We need a fallback'," said the banker, who was not authorised to speak publicly.
When Intesa Sanpaolo, Italy's second-largest bank, evaluated different situations in preparation for its 2011-13 strategic plan in March, none were based on the possible breakup of the euro, and "even though the situation has evolved, we haven't revised our scenario to take that into consideration," said Andrea Beltratti, chairman of the bank's management board.
Beltratti said that banks would be the first bellwether of trouble in the case of growing jitters about the euro, and that Intesa Sanpaolo had been "very careful" from the point of view of liquidity and capital. In late spring, the bank raised its capital by 5 billion, one of the largest increases in Europe. Beltratti said that Italy, like the European Union, could adopt aseries of policy measures that could keep the breakup of the euro at bay.
The main danger of a euro breakup, said Stephen Jen, managing partner at SLJ Macro Partners in London, is "redenomination risk," the unpredictable effect that a euro breakup would have on financial assets as newly created currencies sought their own levels in the market and the value of contracts drawn up in euros came into question. Most people hope that will not happen. "Remember when Lehman went bankrupt - nobody could anticipate what happened next," said the French banker who was not authorized to speak publicly. "That was a company, not a country. If a country leaves the euro - multiply the Lehman effect by 10."