“Fun fact about the Greece bailout: cutting through all the noise, there was an enormous wealth transfer from citizens across Europe to the French banking sector.”, JP Morgan, July 6, 2015
“I had long-suspected that the reason the Germans and French (and other Euros) allowed the Greek debt/financial crisis to go on so long (and increase their exposure by tens of billions), was because if Greece had “hard-defaulted” back in 2010, major European banks would have either failed/been nationalized or had to be recapitalized. And I finally found an article that describes this fact. I couldn’t copy the charts, but at its peak pre-crisis banks (mainly French, German, the Netherlands, and Italian banks) had lent Greece over $300 billion and today it’s less than $50 billion. That dramatic decline didn’t come only from bank write-downs and no private investor was going to pay these Euro bank’s non-market (written-down) price for their Greek debt. So where did it go? It went from the French, German and other European banks to the sovereign governments (primarily in the form of guarantees to special purposes entities) of the European Union. For example, in 2010 French banks held $50 billion in Greek debt, but by 2014 nil and in 2014 the French government guarantees (or holds) about $43 billion of Greek debt (up from nil in 2010). In 2010, German banks held $30 billion in Greek debt and by 2014 just $10 billion, yet by 2014 the German government guaranteed or held over $65 billion in Greek debt (up from nil in 2010). And as the JP Morgan article notes, other Euro countries’ banks, like Spain, had almost no Greek debt exposure in 2010, but by 2014 the Spanish government had about $25 billion in Greek debt exposure (up from nil in 2010). In other words, as the JP Morgan analysis notes….the Spanish citizens (and other European citizens) essentially helped bail-out/recapitalize the major French banks.”, Mike Perry, former Chairman and CEO, IndyMac Bank
Excerpts from July 6, 2015 JP Morgan analysis, “The Grecian Formula: The Greek ‘No’ Vote and What It Means for Investors in Europe”:
- Foreign bank and bondholder claims on Greece fell by 80% as the European Central Bank and other public sector entities took on their exposure
- European banks raised capital levels as a % of risk-weighted assets from 9% to 12%
Fun fact about the Greece bailout: cutting through all the noise, there was an enormous wealth transfer from citizens across Europe to the French banking sector. How so? The chart below (left) shows banking sector exposures to Greece in 2010, and who’s holding that exposure today. No one benefitted more than French banks, whose shareholders should send a giant merci to Italian and Spanish taxpayers that took on the biggest relative exposures. Ironic, to say the least.