With Italy's Bank Stress Test "A Near-Term Risk", Who Is Most Exposed?

With the S&P500's relentless surge, once which even Goldman is no longer able to contain its amazement at what it has dubbed an unprecedented multiple expansion (the other two times that saw a comparable increase in forward multiples ended with the Black Monday crash of 1987 and the 2000 dot com crash, respectively), it appears as if nothing matters: fundamentals, technicals, geopolitics, or frankly any newsflow aside from what central banks may (or may not) do in the near future. Still, as Deutsche Bank reminds us, one key risk-event is coming up in the form of the European Banking Authority’s stress test results that will be released on July 29 which "present another near-term risk to markets."

As Italy's Il Sole 24 reported earlier today, Monte dei Paschi capital is most “at risk” in the stress tests, citing preliminary indications of tests that will be released on July 29.  Perhaps in an attempt to difuse fears of upcoming bank failures, the paper reported that the other 4 Italian banks - Intesa, Banco Popolare, UBI, UniCredit - "show resilient capital level under stressed scenario."

It's a different issue entirely whether markets will believe the story, especially since over the past month, there has been a focus on Italian banks as DB's Dominic Konstam puts it.

But while we are confident that any European stress test will be a joke (as they have been in the past, some riotously so) inquiring minds wonder who is most at risk... just in case the ECB decides that it is finally time for some "contagion." DB conveniently answers:

As of the end of March 2016, international exposure to the Italian banking sector was $90 billion, according to BIS data. This amount represents a reduction from $120 billion at the end of 2014 and is drastically lower compared to the $300 billion of total exposure in 2008. By country, the amount of exposure to Italian banks owned by the US is just 20%, or $18 billion. France, Germany and Spain own another 60% of that risk, totaling $56 billion. When public and private non-bank sectors are included, aggregate risk to Italy as a whole owned by rest of the world is $660 billion, with nearly half of that amount being concentrated in France.

In other words, after a several years' hiatus, should Italy "contage" shortly, attention may very soon shift to France once again...