Credit Suisse: Five Percent Of 'Complete Financial Collapse' In Greece

In a report published Friday, Credit Suisse analyst Sean Shepley discussed the likelihood of a Greece default, or a "Grexit" from the European Union. According to Shepley, a deal between Greece and its international creditors will be made by June and would cover the country's financing needs through the end of the summer. Shepley, along with Credit Suisse's credit strategists maintain a 75 percent likelihood that an agreement will be reached "in the nick of time." The analysts place a 20 percent risk for capital cost controls, and a five percent chance of a "complete financial collapse." "Default to the ECB on July 20 would be viewed as highly systematic, but that the systemic nature would be more political than financial," Shepley argued. "Indeed, in a ‘worst' outcome, political contagion and not financial contagion is seen as the greater risk." Shepley also noted that there is a "rather unlikely," yet optimistic scenario, in which Greece and its creditors manage to craft a comprehensive deal, with additional resources and debt relief that does not require further negotiations in the immediate term. However, such a event has a less than 10 percent probability, but if it does materialize, it would have "very" positive consequences for the stability of the euro area and reduce "considerably" the remaining euro systemic risk. Shepley continued that the sell-off in rates markets has not been due to Greece concerns and headlines but to the combination of higher growth and higher inflation expectations. In addition, the recent strengthening in EURUSD is viewed as "temporary" by the analyst and the firm's foreign exchange strategists, although there is risk the rally could run further. As such, the analysts maintain a recent recommendation for a EURUSD short via a 1.10 versus 1.05 put spread.