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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: NOW who wrote (83157)	11/15/2011 2:06:12 AM
From: elmatador	Respond to of 217574

Banks Conduct Greek 'Fire Drills' take seriously what until now seemed only remotely possible: the withdrawal of Greece from the euro currency. Banks Conduct Greek 'Fire Drills' By SARA SCHAEFER MUñOZ and DAVID ENRICH LONDON—Banks across Europe are starting to take seriously what until now seemed only remotely possible: the withdrawal of Greece from the euro currency. As the fate of Greece's future in the euro zone hangs in the balance, European banks and U.S. banks that operate in Europe are conducting "fire drills" to prepare for a Greek pullout. They are beefing up their hedges against Greek exposure and having lawyers review loan agreements with Greek companies. Until now, most Greek concerns have focused on the possibility of a sovereign default and the losses banks would have to take on their holdings of Greek bonds. Increasingly, however, banks are trying to figure out what would happen to their loans, many of which are denominated in euros, if Greece resuscitates its old currency, the drachma. One thing seems clear: Greece's withdrawal from the common currency would be "very, very messy" for the Continent's banks, said a senior U.K. banker. While such a scenario is unlikely, the chances of it happening have grown in recent days. Greek Prime Minister George Papandreou this week proposed a national referendum on the country's latest bailout deal. Other European leaders for the first time publicly acknowledged the possibility of a Greek exit. Even if the Greek referendum is called off, many experts question whether Greece will remain in the monetary union on a long-term basis. Banks are facing a host of questions about how it would affect the value of their Greek retail and commercial loans and sovereign debt, as well as their exposure to other countries where similar debt concerns could spread, such as Spain and Italy. It is an arduous task. Lawyers are poring over contracts governing thousands of individual loans they have issued to Greek borrowers to figure out what would happen if Greece goes back to the drachma. "It really is case-by-case," said Bob Penn, a London-based partner at law firm Allen & Overy LLP. "It becomes this enormous job of looking through all your Greek-facing documentation." Many variables would be at play in a Greek pullout from the euro, said bankers and lawyers who are advising banks on the matter. Some loan agreements have specific provisions that stipulate what happens if Greece switches currencies. Others state that the loan is denominated in Greece's national currency, which means they would automatically be converted into drachmas. Some bankers are also exploring the whether it would make a difference in value if euro-denominated loans were issued in Greece or elsewhere in the euro zone, under different national laws. "It's very difficult. There really isn't a simple playbook you can roll out and use," said Simon Gleeson, a partner at law firm Clifford Chance LLP. If the country decides to revert back to the drachma, the situation with Greece's creditors would likely land in the hands of the Greek Parliament, lawyers say. It would have to craft laws spelling out exactly what happens to the euro-denominated obligations of Greek institutions and individuals. The most-likely scenario, based on previous instances of currency changes, is that euro-denominated loans would be converted into drachmas at a predetermined exchange rate. That could stick big foreign lenders with hefty losses, as a newly minted drachma would probably lose value rapidly against the euro and other currencies. Foreign companies that operate in Greece are also concerned about a sudden return to the drachma. A European bank executive said corporate clients usually move their earnings out of Greece every two weeks. A few months ago, that time lag shrank to every week, and now they move money out of the country as often as every day, due to concerns that Greece could suddenly abandon the euro. Outside of Greece, a handful of major European banks were holding billions of euros of loans to Greek individuals, businesses and other institutions at the end of last year, according to recent European "stress tests." Among the largest: France's Crédit Agricole SA, which controls Greek bank Emporiki. Crédit Agricole reported holding nearly €13 billion ($17.9 billion) of corporate loans, nearly €4 billion of residential mortgages, and about €1 billion small-business loans. A Crédit Agricole spokeswoman had no comment. The banks aren't the only ones scrambling to assess previously unthinkable scenarios. A British Treasury minister, Mark Hoban, told Parliament on Thursday that the U.K. is involved in contingency planning to assess what would happen if the euro zone breaks up. Treasury officials later cautioned that they don't see that as a likely outcome. —Alistair MacDonald contributed to this article. Write to David Enrich at david.enrich@wsj.com