Tags: Wall | Street | Banks | Eurozone

FT: Wall Street Banks Quietly Prepare for Eurozone Exits

Monday, 06 Aug 2012 01:11 PM

Wall Street banks are hoping for the best for Europe, but are quietly preparing for the worst.

Big U.S. financial institutions are telling counterparties and borrowers to either restructure contracts or find other banking partners, as they reduce exposure to eurozone countries, the Financial Times reports.

Banks are also setting up game plans to use should Greece or Spain exit the eurozone in order to avoid receiving payments in the drachma or the peseta, both of which would be weaker than the euro, the Financial Times adds.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

"We’ve got this contract, it’s in euros, what I want to know is in the event that Spain were to be redenominated are we going to end up being adversaries on this or can we just agree that this is a euro contact? Let’s just move it to London law so we each agree that we know where we stand," one Wall Street executive told the Times.

"If they don’t … when that contract matures there’s not going to be any rollover."

The eurozone has kept all member nations in the fold for now, thanks in part to a bailout totaling the euro equivalent of roughly $160 billion arranged for Greece earlier this year.

European policymakers recently arranged roughly $123 billion in rescue funding for Spain to prop up its banking sector as well as regional governments, though markets remain convinced the country itself will need a financial lifeline from its neighbors.

The yield on the Spanish 10-year note soared to over 7.7 percent recently, well above the 7 percent limit deemed unsustainable by the markets.

The yield moves inversely from a bond's price, and a soaring yield suggests investors view a country as increasingly risky.

“It’s still very speculative to think that things have in any way improved. We’ve not seen significant investment flows into the periphery,” Peter Chatwell, interest rate strategist at Crédit Agricole, told CNBC.

“Credit rating still makes it very difficult for the institutional investor to participate in those markets.”

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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