These stats and commentary on U.S. bank exposure to European debt were provided by a friend of mine, Michael Durante, a hedge fund guy who specializes in large U.S. banks. I believe the legal term for their exposure is “de minimus.” Mike also believes that large U.S. banks are WAY undervalued by the market, as do I.
“As a reminder, the U.S. mortgage market is roughly $10 trillion.
–U.S. bank exposure to France (anybody in France) is roughly $200 billion or 2% of the U.S. mortgage market and half of that exposure is in overnight, fully collateralized Fed funds market equivalent (overnight LIBOR) and the rest largely is made up of direct, collateralized loans to large French companies. The risk of U.S. bank losses? Minimal, at worst. I’d say $0 to $200 million, but nobody will buy that one.
–U.S. bank exposure to Spain is $40 billion and has a similar make-up as France only it’s 0.5% of the U.S. mortgage market.
–U.S. bank exposure to Italy is $28 billion and follows the same trend as above.
–Greece? Too small to measure.
–Portugal? Too small to measure.
–Ireland already bailed out, but less than Spain for a lack of corporate loans to Irish companies = Not many big Irish companies.
And these are gross figures, which means they don’t include insurance and other hedges. Almost none of it is sovereign debt. And when is the last time you heard of a bank losing $ in the overnight LIBOR or Fed funds market? A: never! They are fully collateralized by cash securities in repurchase agreements. In addition, most forget that U.S. banks have over $1 trillion in excess reserves on account at the Federal Reserve.
Liquidity is NOT a U.S. bank problem nor is European credit. What’s next? Y’all will panic that Greenland may default? Did Latin America bring down the U.S. financial system in the 1990s?
Europe is like Japan. They’ll slow boat this issue and remain in a below par economic growth mode for the rest of our lives. The hope of Eastern Europe as a growth zone for the Euro is over. The experiment didn’t work.”