In the ‘Money & Company‘ section of the LA Times online is an article about US banks exposure to troubled markets in the Eurozone.
This is mostly garish copy designed to scare.
From the article:
The six biggest banks (the four named above, plus Wells Fargo and Morgan Stanley) have total net exposure of about $50 billion to the five most financially stressed markets — Greece, Ireland, Italy, Portugal and Spain. “Exposure” includes amounts on deposit, loans outstanding, securities held and other items
The immediate gut-reaction is to reach for the Tums. But then, in a majestic stroke, the Times‘ writer continues with this little gem:
…exposure averaged 0.5% of the banks’ assets and less than 9% of their so-called Tier 1 capital, Fitch said. “Overall, net exposure appears manageable but not without financial costs,” the firm said.
Half of one percent is not a great deal of worry for some of the largest banking firms in the world. Granted, a default on investments in Europe would -to put it plainly- suck really badly, but it is not the kind of leveraging that brings multinational firms. This isn’t 2008 and the clock hasn’t exactly been ticking quietly away for months. Firms all over have lessened their trading in European firms.
From the LA Times again:
The banks have hedged part of their European exposure with credit default swaps, which are insurance contracts that pay off if a debtor defaults. But swaps may not be triggered if creditors agree to voluntary losses by forgiving a portion of an issuer’s debt, which is what has happened with Greece.
So essentially, if the bank’s do get shafted by the Eurozone (an event I would find highly disturbing and unlikely) it still only amounts to less than 10% of their first tier capital, which ought to be enough to accept even a body blow like a Eurozone default.