German banks not giving 'full story' on Greece exposure, says RBC

In credit research published today, Royal Bank of Canada analysts say that the lack of meaningful disclosure by German banks of their Greek exposure is partially responsible for the continued pressure seen in short-term money markets.

RBC believes that some German banks may not be disclosing the full details of their Greek sovereign exposure due to hedging via credit default swap contracts. Analysts note that if Greece eventually undertakes a voluntary restructuring of its debt, CDS contracts may not trigger. As such, these banks would face wrong-way earnings risk from the need to write-down their Greek exposure and the value of the CDS contracts.

French bank disclosure of Greek exposure has been more comprehensive, says RBC. As such there is a lower likelihood of headline surprises from French banks regarding Greece.  

Commerzbank holds the highest exposure to Greek sovereign risk, amongst non- government-owned EU banks, relative to its capitalisation and earnings power. With most of this exposure residing in the Eurohypo subsidiary, RBC believes it is manageable risk.

Credit Agricole has the highest exposure to Greek economy risks, relative to its capitalisation and earnings power. With most of this exposure residing in the Emporiki subsidiary, RBC likewise believes it is a manageable risk.