French banks plan for Greek euro zone exit, say sources

People make transactions at the ATM machines outside bank branches in central Athens May 24, 2012. — Reuters picPeople make transactions at the ATM machines outside bank branches in central Athens May 24, 2012. — Reuters picPARIS, May 25 — French banks, which are among the lenders most exposed to Greece, have stepped up their efforts on contingency plans for the debt-laden country leaving the euro zone, sources familiar with the situation said.

The heightened preparations by banks, including Credit Agricole (CAGR.PA), BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA), come after euro zone sources told Reuters earlier this week that each member of the common currency would have to prepare a plan for a possible Greek exit.

"Every bank has a task force right now looking at the potential consequences of a return to the drachma," a Paris-based banker said.

At end-Dec 2011, total French cross-border lending to Greece was US$44.4 billion (RM140 billion), higher than Germany's US$13.4 billion, according to preliminary Bank for International Settlements data tracking consolidated foreign claims of reporting banks on an ultimate risk basis.

"The banks are doing contingency planning concerning a Greek exit, but you can understand why they wouldn't say so publicly," a consultant to French banks said.

An investment banker who advises European banks said French lenders had all stepped up their contingency preparations for a Greek pull-out at regulators' request over the past two weeks.

Such preparations would contradict some French regulatory sources' contention that a Greek exit remained such a remote possibility that there was no point in drawing up plans for it.

Bank of France Governor Christian Noyer said last week that French regulators were not actively stress-testing banks for the scenario of Greece leaving the single currency, although he said none would be "put in a situation of difficulty" in the event of a Greek exit.

'More reticent'

Newly inaugurated French President Francois Hollande said earlier this week that he viewed a Greek exit as out of the question and that no contingency plans were being drawn up.

"Over in the UK, the financial sector began this kind of contingency planning weeks, months ago," said Hubert de Vauplane, a partner at Kramer Levin in Paris. "I find there is a higher degree of preparation in London than in Paris. For political reasons, the French banks have been more reticent."

French banking and insurance regulator ACP's head declined to comment earlier on Friday on possible contingency planning.

The regulators "would be completely failing in their fiduciary duties if they were not asking for it," the banker said.

BNP Paribas, SocGen and Credit Agricole declined to comment.

The loss risk of a Greek exit would be an estimated 5.2 billion euros for Credit Agricole, 2.9 billion for BNP Paribas and 400 million euros for Societe Generale, according to Natixis analyst Alex Koagne.

Credit Agricole, which has the biggest exposure to Greece of any French lender via its Emporiki unit, said earlier this month that it had a team working to prepare for possible outcomes from a Greek exit even if it saw that as a less probably scenario.

BNP Paribas and Societe Generale have slashed their exposure to Greek sovereign debt over the past year: at end-April, both banks said their Greek bondholdings stood at 0.2 billion euros in their banking books.

SocGen, unlike BNP, also owns local Greek bank Geniki, but the French group's chief executive Frederic Oudea told shareholders this was a "manageable" exposure at around 500 million euros.

Credit Agricole has also managed to cut its exposure to Emporiki by more than half, but that still leaves it at 5.2 billion euros. The bank recently renewed a request for access to emergency funding which have helped prop up domestic Greek banks. — Reuters



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