Bloomberg News

U.S. Banks’ Greek Risk ‘Lot Less’ Than $33 Billion, Schorr Says

June 16, 2011

June 16 (Bloomberg) -- U.S. banks face “a whole lot less” risk to a Greek debt restructuring or default than implied by the almost $33 billion in “guarantees extended” listed in a recent report by the Bank for International Settlements, according to Glenn Schorr, an analyst at Nomura Holdings Inc.

The $32.7 billion figure, which made up the majority of “other potential exposures” of U.S. banks to Greece listed by the BIS as of Dec. 31, doesn’t include hedges or collateral U.S. banks have in place on those guarantees, Schorr wrote today in a note to investors.

Greek Prime Minister George Papandreou today called on his allies in parliament to back his austerity plans that aim to stave off the euro region’s first default. His bid to form a unity government with the leading opposition party failed, and European Union talks on forging a new bailout stalled.

“We think the U.S. banks and brokers have largely hedged their Greek exposure,” Schorr wrote. “We think more legitimate concerns related to a potential Greek restructuring or default concern the possible drag on economic activity or the potential widening of the risk premium in general.”

U.S. banks had overall Greek claims of $7.32 billion, the data showed. About $1.51 billion of the total is public-sector debt, while $1.50 billion is bank debt and $4.32 billion is non- bank private sector debt, the data show. The lenders also had $34.1 billion in other “exposures,” including the guarantees, $1.13 billion in derivative contracts and $320 million in credit commitments, according to the data.

U.S. banks’ “guarantees extended” almost tripled the $11.6 billion extended by all European banks, the data show.

JPMorgan Cuts Risk

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said earlier this month that his bank had cut its “net exposure” to Greece, Portugal, Italy, Ireland and Spain to “$15 billion or less,” down from about $20 billion as of March 31.

Bank of America Corp. had $677 million at risk related to Greece through loans, leases, other financing, derivatives, securities and other investments as of March 31, according to a regulatory filing. About $16 million was from sovereign securities, and the bank purchased $31 million of credit-default protection against its Greek risks, according to the filing.

The yield on Greece’s 2-year bond topped 30 percent for the first time and the cost of protecting Greece against default climbed 280 basis points to a record 2,050 basis points, according to prices compiled by CMA. The euro fell to a three- week low earlier in the day after sliding the most in more than a month yesterday.

--Editors: William Ahearn, Steve Dickson

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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