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What About the Blowback on the European Banks?

Dec. 18, 2014 (EIRNS)—While there is a lot of gloating euphoria still around, people are starting to ask how Russia’s crisis will blow back into Europe, which has been on the verge of a new crisis that would be far more explosive than anything that has happened in Russia. The New York Times has a story titled, "Anxiety Over European Banks Amid Ruble Crisis." It is not just Russia that is affected; "emerging markets" such as Turkey are also being battered. There is good reason for this: the extent of European exposure to Russia, which Turkey shares in this case, seems to be a well-kept secret.

The New York Times writes,

"Adding to the nervousness on Tuesday [Dec. 16] was the lack of precise, up-to-date information about which European banks might have large holdings of, say, Russian government debt. When the European Central Bank began its examination of the resilience of Eurozone lenders at the beginning of the year, a ruble decline seemed like a remote possibility. Hardly anyone anticipated the steep fall in energy prices that would undercut the Russian economy."

There is good reason for this, since the European Central Bank did not include a ruble crisis among the hypothetical scenarios it used in its stress test of banks. Furthermore, data released by the ECB in October following the stress tests provided no details on banks’ holding of Russian debt.

This lack of public data was one of the reasons that Raiffeisen Bank International in Vienna, the Danish brewer Carlsberg, and others believed to have large Russian exposures were hit with large selloffs. Raiffeisen and Bank Austria is a unit of the Italian bank UniCredit, while Austria is the Eurozone country most exposed to in Russia. The maximum potential loss is about 4% of Austrian gross domestic product, according to Oxford Economics.

French bank exposure to Russia is about 2% of GDP, according to figures from 2013, while for Italy the figure is about 1%. For Germany, Spain, and most other Eurozone countries, the exposure is well below 1% of GDP. According to the Banque de France, the country’s largest banks had loans and other investments in Russia of EU47.3 billion at the end of 2013. Although considerably less than their exposure in Greece in 2010, nonetheless several institutions have been hit, including Société Générale in France, which suffered the biggest losses in the Euro Stoxx 50 index on Dec. 16, falling 4.7%. Société Générale owns Rosbank, a major lender based in Moscow, as well as two smaller Russian financial institutions, DeltaCredit and Rusfinance Bank. Shares of Deutsche Bank, which has loans outstanding to Russian customers of EU5.2 billion, nearly 1% of its total credit exposure, fell 2.6%.

According to the Daily Telegraph, PIMCO, the world’s largest bond dealer, has 24% of its assets in Russian bonds.