Why HSBC Holdings plc Is “Monitoring” Greece Closely

HSBC Holdings plc (LON: HSBA) has a large exposure to the Greek banking system.

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HSBC (LSE: HSBA) touts itself as “the world’s local bank”, with a branch network that spans across 73 countries around the world. Unfortunately, Greece is one of the 73 countries in which HSBC is present. In fact, HSBC is more exposed to the Greek banking system than almost all of its European peers. 

Watching events 

HSBC has told investors that it is “monitoring the developments” in Greece closely, as the country teeters on the edge of a sovereign default and banking crisis.  The bank, which generates 34% of group revenues within Europe, is one of the only major European banking groups that has a strong presence within Greece. 

HSBC has a 12-branch retail and commercial network in Greece. So, the group’s local branch network is already feeling the full effects of the crisis, as capital controls limit the amount clients can withdraw from accounts. 

In total, HSBC’s exposure to Greece currently amounts to $6bn and the bank has been reducing its exposure to the troubled Eurozone country over the past few years. HSBC’s exposure has fallen from $7.3bn as reported at the end of 2013. Around $2bn of this $6bn total is tied up in shipping companies based within Greece. 

Small sum 

For a global banking giant like HSBC, being forced to write off $6bn — around 3.7% of the bank’s total net asset value — won’t be the end of the world.  What’s more, it’s unlikely that HSBC will write off the whole debt. As mentioned above, $2bn is tie up in shipping companies based in Greece and these companies are, to a certain extent insulated from the crisis. 

However, a large portion of the bank’s personal and business loans could turn sour as the economic situation within the struggling Eurozone country deteriorates.

Good for business? 

HSBC’s reputation as one of the largest foreign banks operating within Greece has not gone unnoticed. Indeed, there have been some reports that Greek’s are turning to HSBC to offer security, as local banks struggle to remain solvent. 

It seems that the new customers are attracted to HSBC’s global presence and solvency. As a result, HSBC could stand to benefit or, at least, soften the impact of a full default, as new customers look to the bank to offer security. 

Strong balance sheet

At the end of the first quarter, HSBC reported a common equity tier one ratio — its “financial cushion” — of 11.2%, up by 0.1% from the previous quarter. Moreover, the group’s leverage ratio ticked up to 4.9%.

Both of these figures show that the bank is well capitalized. Also, if the group is forced to take a hit from the Greek crisis, the write down should be mopped up in HSBC’s $15bn quarterly operating profit. 

Overall, investors shouldn’t be worried about HSBC’s exposure to Greece, but it’s certainly something to keep an eye on. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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