On Second Thought, Swiss Not At Risk

When market watchers want to know how the debt crisis that began in Greece could spread, they pore over a country-by-country snapshot of commercial banks’ exposure to other countries’ debt. But a closer look shows these numbers aren’t always what they seem.

That became apparent recently when a key indicator of international banks’ risk exposure puzzlingly moved Swiss banks from among Europe’s most at-risk to among its least.

Banks across Europe hold billions of dollars in Greek government debt, but pinpointing their exposure is difficult. To gauge risk faced by countries, many economists, banking analysts and even the International Monetary Fund have relied on data from the Basel, Switzerland-based Bank for International Settlements, often referred to as “the world’s central bank.”

Until recently, market-watchers were looking at BIS’s third-quarter 2009 numbers, which estimated that Switzerland-based banks had $78.6 billion in exposure to Greek debt—placing them alongside French counterparts as the Continent’s biggest potential losers should Greece default.

Then, on April 22, BIS released its fourth-quarter report. In the latest count, European bank exposure to Greece dropped by tens of billions of dollars, led by Swiss banks’ exposure that plummeted 95%, to $3.7 billion.

BIS—which acts as a clearing house for numbers provided to it by national central banks—noted in a report annex that the “reclassification” of a foreign unit of a domestic bank had slashed Switzerland’s international claims.

Some analysts were puzzled. “We don’t fully understand the marked reduction in Swiss bank exposure to Greece,” Citigroup chief economist Willem Buiter, a former Bank of England official, wrote in 70-page report published this week on Europe’s sovereign-debt problems.

According to people familiar with the matter, the drop can be chalked up, essentially, to an administrative change at one bank. These people say that most of Switzerland’s reported exposure prior to the revision was connected not to a Swiss bank, but to one of Greece’s biggest commercial banks, Eurobank EFG.

Eurobank EFG is based in Athens, listed on the Athens stock exchange and has roughly 1,600 branches in Greece and other countries in Central, Eastern and Southern Europe. It is controlled by EFG Group, a holding company that is indirectly controlled by the billionaire Latsis family of Greece.

Until recently, EFG Group had its headquarters in Switzerland.

Eurobank EFG’s credit exposure to Greece, through loans to households and businesses, was €50 billion at the end of 2009— more than $70 billion at exchange rates at the time—according to its annual report.

It is unlikely that the bank posed any significant financial risk to Switzerland. Like all Greek banks, its deposits are insured by the Greek government.

Eurobank EFG’s exposure was classified as Swiss because its parent company was based in Switzerland. In the fourth quarter, the parent company underwent a restructuring; EFG Group is now based in Luxembourg but not classified as a bank there.

Eurobank EFG’s loans in Greece, now considered domestic rather than cross-border positions, aren’t reported by BIS.

A Eurobank EFG spokeswoman referred requests to comment to an official at EFG Group, who didn’t respond to an emailed request to comment.

Analysts say the episode highlights the limitations of international bodies like BIS as conduits of data. “It is difficult to be confident about the data,” Citigroup’s Mr. Buiter now says.