2012.06.13 14:35:14 Fitch Warns of Big Contagion Risks if Greece Exits

STOCKHOLM--There is currently "enormous uncertainty" about Greece's
political direction, and the contagion risks would be significant if
the country chooses to leave the euro zone, a senior official at Fitch
Ratings said Wednesday.

If Greece were to exit the euro, Fitch is quite likely to downgrade
its ratings for most of the euro-zone peripheral countries, Fitch
Managing Director for Sovereigns Ed Parker said at a conference.

Political risks are on the rise in Europe, said Mr. Parker, adding
that a prolonged recession in the region might give rise to "reform
fatigue."

A new round of Longer Term Refinancing Operation loans to banks from
the European Central Bank seems inevitable if Greece leaves the euro,
and is likely even if the country keeps the common currency, Fitch
Managing Director for Financial Institutions James Longsdon said at
the conference.

The ECB's earlier LTRO rounds have eased, but not eliminated, funding
concerns in Europe, he added.

In the Nordic region, the banks have generally benefited from solid
capitalization, but some of them still face some potential problems,
said Jens Hallen, Fitch director for financial institutions.

Some of the issues facing Nordic banks include slow economic growth in
Denmark, Swedish lenders' reliance on potentially unstable
international investors for funding, and the possibility of a future
housing bubble in Norway, he added.

If the financial turmoil in the euro zone should intensify, for
instance through a Greek exit, Nordic banks are likely to see little
direct impact as their exposures to the region's periphery are
limited, Mr. Hallen told Dow Jones Newswires in an interview at the
conference.

However, the banks could suffer indirect effects in the longer term,
for example if Nordic companies' exports to the euro zone get hit, he
said.

Swedish banks will need to manage their liquidity tightly in order to
limit the risks of their foreign funding reliance, said Mr. Hallen.
They have limited scope for replacing the market funding with deposits
as Swedes tend to save relatively little in bank accounts, he noted.

There is a "medium" risk that the Swedish banks' foreign funding dries
up if the European financial crisis gets worse, said Mr. Hallen.
However, an intensifying euro-zone crisis could also have the opposite
effect as it could potentially lead international investors to move
funds from the continent to Swedish banks, he added.

Write to Gustav Sandstrom at gustav.sandstrom@dowjones.com


(END) Dow Jones Newswires

June 13, 2012 05:05 ET (09:05 GMT)