Market Turbulence Looms as Greek Referendum Threatens Calm

U.S. Banks Decline on Greek Talks Failure, Capital Controls
by Dakin Campbell
June 29, 2015 — 6:46 AM PDT Updated on June 29, 2015 — 11:37 AM PDT


Tsipras Asks European Union for a New Bailout Program

Greece Staggers Into Economic Unknown With Bailout Expiring

Greece Can Stay in Euro Even With ‘No’ Vote, Schaeuble Tells Lawmakers

Fear and Frustration: Life Under Capital Controls

Shares of the biggest U.S. banks fell, led by a 2.7 percent decline in Morgan Stanley, after talks to provide Greece with additional bailout aid failed and the Greek government imposed capital controls.

The Standard & Poor’s 500 Financials Index slid as much as 1.9 percent, the biggest decline in more than three months. JPMorgan Chase & Co., the largest U.S. bank by assets, dropped 2 percent and No. 2 Bank of America Corp. slid 2.5 percent.
Prime Minister Alexis Tsipras called for a July 5 referendum on whether Greece should accept additional austerity demands from the country’s creditors, and French President Francois Hollande said the results would determine Greece’s future membership in the 19-nation euro region.

Greek banks were closed on Monday and the government imposed capital controls to avert a collapse of the nation’s financial system. Greek stocks and bonds tumbled, and Europe’s Stoxx 600 Banks Index fell 4 percent. Lenders in Italy, Portugal and Spain posted the biggest drops.

JPMorgan, Citigroup Inc., Bank of America and Morgan Stanley have reduced their collective exposure to Greek sovereign, corporate and financial-institutions debt to less than $2 billion from about $3.75 billion in mid-2012, according to the Office of the Comptroller of the Currency.

Citigroup’s Total
Citigroup has exposure to Greek borrowers, including loans, derivatives and securitized products, of about $1.3 billion, as well as third-party assets and liabilities in its Greek branch of approximately $44 million and $481 million, respectively, according to a first-quarter regulatory filing by the New York-based company.
Jamie Forese, head of Citigroup’s institutional clients group, said at an investor conference this month that the bank has reduced its exposure to Greece as much as it can while still serving its clients. The firm has also balanced its assets and liabilities to guard against a departure from the currency union, he said.
“We have been planning for a variety of scenarios and managing our Greek that it sold its Greek retail operation in 2014.

Bank of America, based in Charlotte, North Carolina, said in its first-quarter filing that its net exposure to Greece was $386 million.
Goldman Sachs

Goldman Sachs Group Inc.’s total credit exposure to Greece was $180 million, mostly with sovereign counterparties. Market exposure as of March was negative $34 million, the company said in its first-quarter filing. The totals were down from $1 billion in credit exposure and $54 million in market risks as of December, Goldman Sachs said.

“You’d have to assume that the risk is much more contained given people have had years to focus on this,” Goldman Sachs Chief Financial Officer Harvey Schwartz said in April.

William Dudley, president of the Federal Reserve Board of New York, said developments in Greece are a “huge wild card” that some investors are underestimating.
“If this goes badly, the market reaction may be bigger than what we realize,” Dudley said in an interview with the Financial Times published Sunday.