ETF Trends
ETF Trends

The Dow rose almost 80 points late Monday but exchange traded funds tracking the U.S. banking sector closed with losses as investors try to sort out lenders’ exposure to Greece’s accelerating debt crisis. For example, Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC) and JP Morgan (NYSE: JPM) finished the session in the red.

The largest bank ETF by assets, SPDR KBW Bank ETF (NYSEArca: KBE), slipped 0.5%. Citigroup (NYSE: C) cutting second-quarter profit estimates for some big lenders also hurt the sector. [Financial ETFs Lag on Profits, PNC]

“Concern over U.S. financials exposure to Greece has increased since the latest Bank for International Settlements (BIS) data was released,” Deutsche Bank analysts wrote in a recent research note. “This data showed the U.S. having $7.3 billion of direct exposure to Greece and $34.1 billion of indirect exposure (which is mostly credit protection).”

However, they added the indirect exposure is “likely overstated” given it represents gross exposure and doesn’t consider account collateral, hedges and third-party guarantees.

Here are some banks’ exposure to the European debt crisis, according to Deutsche Bank:

  • Bank of America: The company’s first-quarter 10-Q showed $17 billion of total exposure to Greece, Ireland, Italy, Portugal and Spain “and that it was a $1.7 billion net buyer of credit default protection for these countries.”
  • Citigroup: The latest quarterly report from the firm indicated exposure to European peripherals was less than 0.75% of total assets for each country, or less than $15 billion each. “However, we believe exposures are meaningfully less than this,” Deutsche Bank said.
  • JP Morgan: “At a recent conference, JPM noted it has less than $15 billion of total exposure to Greece, Ireland, Italy, Portugal, and Spain (after taking into account collateral, hedges, and third-party guarantees).”
  • Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS): “Based on disclosure and management comments, there is no meaningful direct exposure in either cash or derivatives to Greece,” according to the analyst report. “That said, to the extent the Greek issue continues to weigh on the market, activity levels in the capital markets will likely be negatively impacted.”

SPDR KBW Bank ETF


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