THE exposure of Britain to the eurozone’s weakest members was laid bare last night as French and German officials scrambled to agree a rescue package for Greece.
Based on Bank for International Settlement numbers, in total the UK’s financial sector has just under £250bn in exposure to Portugal, Ireland, Italy, Greece and Spain (Piigs).
The data compiled by Mayfair-based hedge fund BlueGold Capital Management showed the liabilities – which include public and private debt as well as other instruments – equal 16 per cent of the UK’s GDP.
Even more vulnerable to a default by the struggling countries are France, whose lenders own assets amounting to 30 per cent of its GDP, and Germany, whose finance houses have exposure adding up to 19 per cent of its GDP.
BueGold managing director Stephen Jen said losses on these instruments could tip the UK banking sector into a fresh meltdown.
He said: “It’s much more serious than Dubai or Eastern Europe. This is bigger. If anything goes wrong, banks aren’t going to be able to lend out mortgages because their assets are hugely compromised.”
Shares in the Square Mile’s native banks bombed after EU leaders put out a vague statement of support for Greece, which is ailing under a huge debt pile. ETX Capital analyst Manoj Ladwa said traders were piling out of banking equities amid confusion as to which institutions had significant sovereign debt exposure.
But, Exane BNP Paribas analyst Ian Gordon said markets were more worried that banks’ margins would be squeezed as the blow-out in spreads on sovereign credit default swaps (CDS) fed through to financials’ CDS spreads, which are seen as a rough guide to wholesale funding costs.