PIIGS Claims On European Banks: $1.5 Trillion; France Most On Hook In PIIGS Implosion

Here is one reason why Europe, while doing everything it can to make it seem (politically) like a bailout of Greece is out of the question, is and will continue to do all in its power to prevent a domino effect within the PIIGS countries: actually make that 1.5 trillion reasons. According to the IMF, the total amount of foreign claims, in this case focusing on Southern Europe countries, better known as PIIGS, on European international banks is $1.54 trillion. And while many have claimed that Germany would stand to lose the most from an implosion in the European periphery, that is in fact not true true: with $781 billion, France has much more at stake than Germany, whose banks have "just" $522 billion in "Southern European" claims. And while the IMF cut German GDP forecasts in large part due to the country's exposure to Southern Europe, it appears that France is next on the chopping block.

This is shown in the chart below:

The source of the above data is IMF report titled: "Germany: 2010 Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Germany" in which the Greek rescue ranger (funded to a great part by the US) decided to cut Germany's 2010 GDP forecast from 1.5% to 1.2%, and 2011 from 1.9% to 1.7%. In the report, the IMF notes:

"Simulation exercises suggest that German banks could suffer significant losses from commercial real estate investments in the U.S. and Spain, and more generally from exposures to Southern Europe.  The simulations also suggest that a reassessment of risks associated with claims on Southern Europe could have a large impact on capital flows within Europe, as German (and also French) banks would significantly reduce their foreign claims to restore capital ratios."

One observation from the above chart is that the US at least will not be majorly impacted in a worst case scenario as it has the least amount of exposure, with just $118 billion. The same can not be said for France, Germany or the UK, which as we pointed out earlier, have a combined of over $1.5 trillion in net exposure.

What is sure, however, is that since IMF has just cut German GDP forecasts, using the same arguments and methodology, France is next.

When observing just this phenomenon, BTIG's Mike O'Rourke notes with a dose of sarcasm:

There is a touch of irony here.  In his memoir, Treasury Secretary Paulson recounts an episode during the Bear Stearns meltdown when Deutsche Bank CEO Joseph Ackermann asked why Deutsche should do business with any U.S. investment bank.  There is no doubt, Ackermann gets high marks for exercising good judgment, on the other hand, his tact was reminiscent of Bear Stearns during the LTCM crisis in 1998.  Earlier this month, Ackermann found himself lobbying for a Greek rescue commenting “If we can’t stabilize the country, then the next problem after Greece would be the banks.”  Ackermann also stated that “If it really comes down to a question of rescue or no rescue, I’m convinced it should be a rescue.”

We have previously demonstrated that Deustche Bank's assets as a percentage of German GDP is 84%. Should Ackerman be in need of a bailout, the same will be true for Germany as a failure of the PIIGS would lead to a failure of DB, and likely Germany itself. Yet once again France avoids the focus: the country's top three banks: BNP Paribas, Credit Agricole, and SocGen: have assets accounting for 237% of French GDP! Who knows how much of this is collateralized by the banks $781 billion in PIIGS exposure. How has France managed to squeak through the cracks for so long? It appears that the country is in a much more dire situation vis-a-vis deterioration in the European periphery than anyone else, in terms of both exposure and risk concentration.