Greek Bank Stock Plunge; What Would Default Cost Europe? -- Barron's Blog

     

By Dimitra DeFotis
        Greek bank stocks continue to stumble lower after the Athens market reopened Monday to weak manufacturing data, though the Global X FTSE Greece 20 ETF ( GREK) is up 1.5% today.
        A number of stocks were halted after big slides Monday. Today, Greek bank shares -- what's left of them -- look dismal in U.S. trading. The National Bank of Greece ( NBG) is down 5.6% in U.S. trading today to 80
        Citi's Ebrahim Rahbari, Willem Buiter and Antonio Montilla write:
        "Should Greece remain in the Eurozone, defaults of Greek banks and the Greek government could leave the Eurosystem with losses of EUR59 billion ($64.6 billion), if neither the Greek government nor future seigniorage income [profit made by issuing currency] of the Bank of Greece were to absorb any of the losses ... in all likelihood, the Eurosystem's losses would be reduced through some combination of recapitalization of the Bank of Greece by the Greek government and the assignment of (part of) the future seigniorage income of the Bank of Greece to the other Eurosystem NCBs ...
        With Grexit, Eurosystem losses on Greek assets could currently amount to EUR185 billion, which, if they occur, would mostly be allocated to individual national central banks according to their share in the ECB's capital... the Eurosystem's conventional loss-absorption capacity is EUR560 billion, comfortably above its likely losses on Greek assets even under Grexit ...
        The maximal direct exposure of the rest of the Eurosystem (ECB plus the 18 non-Greek national central banks) to Greece consists of exposures to Greece from i) the stock of Bank of Greece funding of Greek banks through repos and other collateralised loans as part of the (risk-pooled) single monetary policy operations plus ii) outright holdings of risk-pooled Greek assets by the rest of the Eurosystem plus iii) outright holdings of supposedly own-risk Greek assets by the Eurosystem ex Bank of Greece, plus iv) exposure to the Bank of Greece."
        A survey of Europeam purchasing managers in June showed a collapse in Greek output. The paralysis is not quite a surprise after the Greek government closed banks and instituted capital controls at the end of June as the threat of a default and eurozone exit mounted. The Wall Street Journal reports the headline Purchasing Managers Index for Greece plummeted to 30.2, the lowest level recorded in the 16-year history of data collection. A Level of 50.0 separates a contraction from an expansion, and the eurozone measure stood at 52.4."
        See our posts " Greece: As Stock Market Reopens, Grexit & Election Loom and " Is Greek Debt Unpayable? A Reading List."
        (END) Dow Jones Newswires

        August 04, 2015 13:28 ET (17:28 GMT)

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