Photo: Morgan Stanley
Greece has just been downgraded by Moody’s, and the country’s bond spreads are going completely nuts.Some kind of default or restructuring seems completely inevitable now, despite promises of support.
Thus it’s more important than ever to revisit the various counterparties who will get slammed in a collapse.
Citi: 80% of Greek debt claims are on European banks. This is a European problem.
JP Morgan: There will be a flight to US treasuries and yields will fall there as a result of renewed risk aversion. This will widen spreads on high grade corporate bonds as a result.
Wells Fargo: If IMF has to act on Greece and its neighbours, particularly Spain, its could be hindered in acting in other crisis around the world as it will use up too much of its capital.
Morgan Stanley: There are only a few businesses heavily exposed to one of Greece, Spain, or Portugal, but they include MapFre and Fortis.
Morgan Stanley: 39% of Fortis' tangible book value is exposed in Greece, 25% in Portugal, and 69% in Italy.
Morgan Stanley: MapFre has 4 billion Euros of exposure to Spanish government bonds.
Morgan Stanley: While not over exposed to Greece or any of the PIIGs, several of the insurance giants have positions in each country which could become difficult if crisis was to spread throughout the debt troubled states after a Greek default or rescue. This is, however, unlikely.
Morgan Stanley: Short the Euro against the Dollar, as the US moves towards a more stringent economic policy and the Euro zone experiences several potential bailouts.
Morgan Stanley: The Greek crisis will make the EMU much more concerned about who they let into the Euro zone in the future. They will start to check more economic criteria, such as external imbalances and budget positions.
Morgan Stanley: With the German economy stalled and threats like Greece existing on the periphery an ECB rate hike is now increasingly unlikely, perhaps for the whole of 2010.
Morgan Stanley: Bulgaria and Romania rely on Greek banks for a large amount of lending, much of which will be cut back in a Greek collapse due to a reliance on government loans. Reliance will shift towards local deposits as a source of lending, and those economies are weak already.
Morgan Stanley: When the Greek economy slides, foreign workers from Albania and Bulgaria may lose jobs and stop sending home remittances. Also, FDI to Macedonia (7% of its GDP) and Bulgaria (8% of GDP) will decrease.
Morgan Stanley: Extreme tail risk scenario points to complete retrenchment by Greek banks from all Central Eastern European markets which results in their loan books not being rolled over to their local subsidiaries.
Could spark a credit crisis in countries like Romania and Bulgaria, where 25% and 45% of the respective country's loans come from.
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