06.08.2012
By Simon Miller
Companies are cutting their exposure to European credit risk and preparing for a euro-exit or even break-up.
Last week, British Airways' owner International Airlines Group (IAG) admitted it had set up a group to examine a euro break-up while oil company Shell has said it was cutting its European exposure.
Talking to The Times newspaper, Shell's chief financial officer Simon Henry said it was cutting back its exposure to European credit risk in the likes of Greece and Spain and putting a higher price on doing business with the region's peripheral nations.
Henry said that Shell differentiated between different credit risk while saying the company would rather deposit $15bn (£9.59bn) of cash in non-European assets such as US Treasuries and US bank accounts.
"There's been a shift in our willingness to take credit risk in Europe. The crisis has impacted our willingness to afford credit," Henry commented.
Although Shell has to keep some money in Europe to fund its operations, the bulk of its reserve liquidity is out of the eurozone, according to the paper.
Henry also said the credit relationships in its European supply chain was being reviewed as there was a question as to whether banks that finance Shell's suppliers could "continue to finance them".
The report comes after IAG admitted that it was setting up contingency plans for a euro split.
In its interim report, the global airline company - which has been hit by its Spanish airline Iberia's exposure to the debt crisis - said its management committee and board regularly consider eurozone risk and the initiatives underway to manage, as far as practicable, their impact on the group.
"These initiatives include establishing a eurozone crisis management group that meets every two weeks to review progress on projects; scenario planning based on previous shocks to the business; ensuring financial counterparty risk and hedging policies continue to be fit for purpose; and commencement of a Spain Euro exit roadmap project which considers the commercial, administrative, systems and people issues to be addressed," the report said.
IAG added the the proportion of the group's bank counterparty exposure with Spanish banks has decreased from 27% at 31 December 2011 to 3% at 30 June 2012.
The Group‟s exposure to Italian, Irish, Portuguese and Greek banks was less than €1m (£0.79m), consisting of cash to meet day to day operating needs.
Other stories you may find of interest:
Holding out for a debt restructure
Greece stands before a default abyss but, as Simon Miller discovers, before it rushes to restructure, there are litigating risks from international trade treaties to consider
Greece set to default as debt holders take hit
Private lenders are expected to take a €50bn (£44bn) hit over the next three years as Greece looks set to be the first Eurozone default.
