These Are the Five European Banks in Focus on Lira: Street Wrap

(Bloomberg) -- European banks drop for a second day, particularly those with exposure to Turkey, as the lira slumps for a fourth day to a record low. Analysts see four to five banks most exposed and expect capital ratio pressure and negative P&L translation from bond portfolios and FX effects. No impact on funding yet, though liquidity constraints and debt haircuts could ensue if the situation worsens.

The Stoxx 600 Banks Index is trading lower Monday, extending Friday’s 1.9% drop, heading for a fourth day of declines.

Morgan Stanley, analysts including Bruce Hamilton

• BBVA most exposed with about 13% of total loan book; 4% at UniCredit and 2% each at ING and BNP
• Equity exposure of group CET1 ranges from 11% at BBVA to 6% at UniCredit and 2% at ING and BNP
• Estimates limited disruption in wholesale funding, based on balance sheet structure
• Sentiment may lead to negative read across to other emerging markets, risk assets may hinder short-term recovery

Deutsche Bank, analysts including Flora Benhakoun

• Don’t expect systemic implications from lira crisis and believe the impact should be broadly manageable for European banks
• See five European banks (BBVA, UniCredit, ING, BNP, and HSBC) with a notable presence or exposure to Turkey:
  • BBVA, via Garanti (50% ownership); UCG, via Yapi Kredi (~40% ownership); ING, via wholly owned subsidiary; BNPP, via TEB (72% ownership); HSBC, via wholly owned subsidiary
• Depending on how the situation proceeds, there may be “significant” capital and earnings implications

Citi, Stefan Nedialkov

• Spanish, French and Italian Banks most linked to Turkey
• European banks’ Turkey exposure is 1% of group based on the latest EBA data
• For the four most exposed banks, it is 4% of the total: BBVA is most exposed
• Share price performance discounts high probabilities of banks walking away from Turkey; sees ~40% probability for BBVA, close to 50% for ING

UBS, analysts including Ignacio Cerezo

• Sees reduced earnings contribution from Turkey as already priced-in at BBVA and UniCredit
• Expects no re-rating for these two stocks until greater clarity around local policy response is available
• In a more negative scenario, may see liquidity constraints (~75% of liabilities are <1yr duration), book value impairments, debt haircuts or hyperinflation accounting

To contact the reporter on this story: Jan-Patrick Barnert in Frankfurt at jbarnert3@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Monica Houston-Waesch, Beth Mellor

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