Contagion in Spain and Italy could cost UK banks £100bn
British banks could face potential losses of up to £100bn if Italian and Spanish economies implode following contagion from Greece, figures show.
By Louisa Peacock
8:00AM BST 16 Jun 2012
The latest data from the Bank of England reveals that UK lenders are exposed to the tune of $142.5bn (£91.3bn) in both Italy and Spain, spelling potentially disastrous consequences for British banks should these European economies collapse.
Of the total, British banks have $83.1bn tied up in Spain’s public and private sector, including its banking system, and a further $59.4bn exposure to Italy.
UK banks are relatively insulated to the sovereign debt of the weakest European economies compared to other lenders in the eurozone, including those in Germany and France.
But they remain highly vulnerable to private sector debt in Italy and Spain, the Bank said, and have significant money locked up in major European banking systems, resulting in “indirect” exposure to the public sector debt crisis.
As at the end of December, the period for which the latest figures are available, UK banks exposure to Italy was $59.4bn. Of this, $44bn was private sector debt and just $8.4bn was sovereign debt.
In Spain, a similar picture emerges, with $65.8bn of the total $83.1bn exposed in the private sector, compared to $4.4bn in sovereign debt.
The Government’s radical new bank funding scheme, announced on Thursday, is the latest attempt to shield British lenders from the impact of the eurozone crisis.
The £140bn emergency stimulus package is intended to kick-start mortgage and small business lending and “defend our economy from the crisis on our doorstep”, according to Chancellor George Osborne.
But analysts warn that significant risks remain for British banks. In total, UK lenders’ exposure to private sector debt in Greece, Ireland, Italy, Portugal and Spain (the GIIPS) was $245.8bn, according to the Bank’s report.
Specific UK banks that are most exposed to the eurozone crisis include Barclays and bailed-out Royal Bank of Scotland, according to a 171-page Credit Suisse note this week.
In the event that the GIIPS, or the “peripheral” EU countries, leave the eurozone, Barclays faces losses of €37bn (£30bn) and bailed-out RBS €27bn, the note said.
In contrast, Lloyds, which has significant exposure in Ireland but a significant deposit base in Germany, faces losses of €500m, Credit Suisse said.
For RBS, the main direct area of exposure should the peripheral countries exit the eurozone is in investment banking, where there is a significant asset base from its acquisition of ABN. The second biggest area of direct exposure would be the collapse of the Irish economy.
If Greece alone was to leave the single currency, the analysts calculate that 5pc of the value of Europe’s banks could be wiped out – far smaller than the 58pc losses in a peripheral exit.
Marc Ostwald, analyst at Monument Securities, said there was “some risk” there would be a run on British banks should the eurozone break up.
However, he added: “If there is a break-up, it doesn’t mean investors won’t invest. At the moment they have money on the sidelines and are waiting for some clarity, positive or negative. [A break-up] could give them the incentive to act.”