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Spain has been the center of attention in recent news. Spanish bonds yields have been rising quickly and financials have seen weakness in their share price due to their exposure to Spanish debt. In this article I intend to analyze which banks have the most exposure to Spain and to the PIIGS (Portugal, Ireland, Italy, Greece, Spain) in general.

On Friday, 15 July 2011, the European Banking Authority (EBA) published the EU wide stress test on 91 banks. In these stress tests, the exposure of the European banking sector to the European sovereign debt was released. I will specifically focus on the gross direct long sovereign debt exposure of the banks to the PIIGS countries. I know this information is not up to date, but it is a good way to gain high level insight into this matter.

The exposure to Spain primarily came from the Spanish banks themselves (Table 1). BBVA, Banco Santander (STD), La Caixa, BFA-Bankia, Banco Popular Espanol. What is striking here is that on average, all of these Spanish banks had exposure greater than their equity. This means that a government default would have significant consequences for the solvency of these Spanish banks. Also note that Barclays (BCS) has significant exposure to Spanish debt. It is advisable not to have these banks in your portfolio during a debt collapse in Spain.

Table 1: Top 6 Bank exposure to Spanish sovereign debt (December 2010)

Bank

Gross Direct Long Exposure

(BLN USD)

BBVA

73

Banco Santander

60

La Caixa

47

BFA-BANKIA

33

BANCO POPULAR ESPAÑOL

12

Barclays

12

Table 2 lists the most famous banks exposed to the Spanish debt. Of these banks KBC, Barclays, BNP Paribas (OTCQX:BNPQY), Commerzbank (CRZBY.PK) and Credit Agricole (CRARF.PK) have significant exposure to Spanish debt (10-20%). These banks should also be avoided by investors during a debt collapse of Spain (assuming they still have exposure to these assets).

Table 2: Famous banks: exposure to Spanish sovereign debt (December 2010)

Bank

Gross Direct Long Exposure

(BLN USD)

Market Cap (BLN USD)Price/BookBook Value (BLN USD)
Barclays12,042,00,5084
BNP Paribas6,6470,4996
Commerzbank5,4110,3631
Credit Agricole5,2130,2454
Deutsche Bank (DB)3,5400,6067
HSBC (HBC)2,71540,99156
ING (ING)2,6270,4757
KBC Bank (OTCPK:KBCSF)1,960,5212

Of the banks listed in Table 2, there are some that have debt exposure to other PIIGS countries. Table 3, 4 and 5 list the bank exposure to Greece, Portugal and Italy respectively. (I didn't include Ireland as the exposure to Ireland is very small)

Table 3: Bank Exposure to Greece (December 2010)

Bank

Gross Direct Long Exposure (BLN USD)

Market Cap

(BLN USD)

P/B

Book Value

(BLN USD)

Commerzbank

4,0

11

0,36

31

Deutsche Bank

2,3

40

0,6

67

Table 4: Bank Exposure to Portugal (December 2010)

Bank

Gross Direct Long Exposure (BLN USD)

Market Cap

(BLN USD)

P/B

Book Value

(BLN USD)

Banco Santander

4,8

57

0,60

95

BNP Paribas

3,0

47

0,49

96

Barclays

1,8

42

0,50

84

Credit Agricole

1,6

13

0,24

54

HSBC

1,3

154

0,99

156

Table 5: Bank Exposure to Italy (December 2010)

Bank

Gross Direct Long Exposure

(BLN USD)

Market Cap

(BLN USD)

P/B

Book Value

(BLN USD)

BNP Paribas

36

47

0,49

96

Commerzbank

15

11

0,36

31

Credit Agricole

14

13

0,24

54

HSBC

13

154

0,99

156

Barclays

12

42

0,50

84

Deutsche Bank

10

40

0,60

67

Which banks to avoid during a debt collapse of the PIIGS?

If we quickly analyze these tables, we notice that Commerzbank shows up regularly. Commerzbank is exposed to Spain, Greece and Italy. In total, it has 24 billion USD exposure to the PIIGS, while it has a book value of 31 billion USD (77%). In a worst case scenario, Commerzbank will be almost insolvent.

BNP has exposure to Spain, Portugal and Italy. It has 46 billion USD exposure to the PIIGS in total, while it has a book value of 96 billion USD. The exposure to the PIIGS is very significant (50%), especially due to its exposure to Italy.

Credit Agricole is another bank that pops up regularly. Credit Agricole has exposure to Spain, Portugal and Italy. It has 21 billion USD exposure to the PIIGS, while it has a book value of 54 billion USD. The PIIGS exposure is very significant (40%) compared to its book value.

Barclays is the last in the list and has exposure to Spain, Portugal and Italy. In total it has 26 billion USD exposure to the PIIGS, while it has a book value of 84 billion USD. This exposure is significant (30%).

Conclusion

If your portfolio contains Commerzbank, BNP Paribas, Credit Agricole or Barclays, I would be very careful.

Source: Analyzing Bank Exposure To The PIIGS