Should You Sell HSBC Holdings plc, Royal Bank of Scotland Group plc, Banco Santander SA & OneSavings Bank plc On ‘Grexit’ Fears?

Is HSBC Holdings plc (LON:HSBA), Royal Bank of Scotland Group plc (LON:RBS), Banco Santander SA (LON:BNC) or OneSavings Bank plc (LON:OSB) most exposed to ongoing developments in Greece?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Even though most major European banks have limited direct exposures to Greece, they are indirectly affected by what’s happening in Greece. The financial services industry is globally connected, and tightening credit conditions in one region often spreads quickly to the rest of the world.

Although the small size of Greece’s economy means that a default on its debts will have limited direct consequences on the rest of Europe’s economy; fears of contagion to the other indebted countries in Southern Europe is a very real risk. Europe’s leaders will likely do whatever it takes to prevent this from happening, but the lack of an immediate solution could cause further panic in the financial markets.

HSBC‘s (LSE: HSBA) exposure to Greece was $6 billion at the end of 2014. The bank had cut its Greek assets from $7.3 billion since the end of 2013, but its current exposure is the largest of all European banks outside of Greece itself.

It is of some comfort that the $2 billion in loans to Greece’s shipping industry is denominated in US dollars and has been booked in London. The shipping industry, which is more dependent on global economic conditions, is better insulated to developments happening in Greece. This means that HSBC’s exposure is smaller than what its headline figure suggests.

Even if much of its loans in Greece sour, HSBC’s strong capital position would mean that it could comfortable absorb the losses. But, that would still have a huge impact on earnings; which has already been weak, despite a tapering of loan losses at a low level. Its return on equity in 2014 was just 7.3%; and has been below its 10% target  in every year since 2007, except once in 2011. So although you may not sell shares in HSBC on Greek worries, you probably shouldn’t buy them either.

Of the British banks, RBS (LSE: RBS) is expected to have the second largest exposure to Greece. At the end of 2014, RBS had about £400 million in assets exposed to Greece, which is much less than HSBC. But, because of collateral and guarantees, its net exposure is only about £120 million.

The bank still has a long way to go in its recovery, but it is moving slowly, but surely in the right direction. Analysts expect earnings will be much improved this year, with forecasts for earnings per share (EPS) of 27.2 pence, which implies a forward P/E of 13.5.

Santander’s (LSE: BNC) exposure to Spain is its key drawback. Spain’s weak economic growth, its large fiscal deficit, reliance on foreign borrowings and the rise of left-wing populist party Podemos means that the country’s situation is very comparable to Greece.

On a positive note, Santander’s strong global retail banking franchise is highly efficient and relatively profitable. Its credit quality in Spain and Latin America is steadily improving; and its capital position is strong, having already raised capital earlier this year. So unless, Spain follows in Greece’s footsteps, Santander will continue to deliver on steady earnings growth.

Retail challenger bank, OneSavings Bank (LSE: OSB) has no direct exposure to Greece, and very limited exposure outside of the UK. Its fast growing loan book and low operating cost structure should mean the bank would prove to be resilient even with the uncertainties surrounding the Greece’s future.

Analysts expect EPS will grow by 29% this year, to 31.5 pence, which implies a very attractive forward P/E ratio of 10.1.

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.

Jack Tang 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.

More on Investing Articles

Newspaper and direction sign with investment options
Investing Articles

When cheap markets meet favourable conditions, sentiment flips very quickly

London’s stock market is cheap — some sectors, even cheaper. Given a change in sentiment, the uprating could be substantial.

Read more »

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »