European Banking Exposure to Bankrupt PIIGS Will Weigh on Financial Markets 2012
Stock-Markets / Financial Markets 2012 Nov 26, 2011 - 11:41 AM GMTBy: Capital3X
We took a list of the largest European banks by assets and compared their market cap, common equity, and total exposure to PIIGS debt (thank you for the bank statistics, EBA!). Then we calculated exposure to PIIGS debt (sovereign and private) as a percentage of the banks’ common equity.
In terms of Banks, the Bank of Ireland, already having access to ECB credit line has the maximum exposure to PIIGS sovereign bonds with a 102.4 bn euros exposure with a mere 1.39 bn market cap and 7.4 bn shareholder equity. If not for a bailout, Irish banks should have eaten dust by now.
Bank PIIGS exposure wrt to Market Cap
Unicredit (Italy), Bank of Ireland (Ireland), BBVA (Spain), EFG Eurobank Ergasias (Greece), Intesa Sanpaolo Group (Italy), Banco Popular Español (Spain), Banca MPS (Italy) and Dexia (Beligum) are leading the way in leverage in terms of market cap. Clearly there is a lot more for the price to fall if leverage in terms of market cap has to be in greater rational order.
TOP 20 bank PIIGS bond exposure wrt shareholder Equity
The sheer weight of the leverage can be analysed when you consider that for each shareholder dollar, the bank has leveraged it over 10 times to take on assets which are clearly depreciated over the years and this resulting in massive holes on the balance sheet. Dexia and Unicredit has already seen their spreads widen. Unicredit has already announced a massive 10 bn euro writedown which we believe is only the beginning in a series of writedowns to happen over the next 12 months. Intesa Sanpaolo Group (Italy), Banco Popular Español (Spain) and Banca MPS (Italy) are all very ripe for picking up on the short side with exposure to PIIGS rising over 1000% over the shareholder equity.
PIIGS exposure by country
Spain has the maximum PIIGS sovereign bond exposure and nearly accounts for 42% of the 3.2 trillion euros held by the top 20 banks. Banco Popular Español (Spain) and Banco Santander (Spain) are two main banks holding the baton in case there is a write down which looks increasingly possible.
We continue to believe that the series of write down to begin Q1 2012 will keep risk on its toes and expect at a 20% correction in risk assets in the first half of 2012.
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