Short These U.S. Banks If Greece Defaults

By now, we know the French and German banks that have Greek debt exposure, and those banks have been hit hard, with their stocks suffering, and their CDS spreads rising. Now we finally get a cumulative look at the U.S. banking sector's exposure to Greek debt, and it is not pretty. According to this article from MarketWatch, U.S. banks had $41 billion in Greek debt exposure at the end of last year, according to the latest numbers from the Bank for International Settlements. Most of the commitments appear to be indirect, with approximately 83% of the exposure in "guarantees." Kash Mansori, who writes the Street Light blog, thinks most of the exposure is through credit default swaps, so if Greece were to default, the insurance would have to be paid. Even though banks like Bank of America BAC, J.P. Morgan JPM, and Citigroup C may have tiny or insignificant direct exposure to the Greek banking system, if the country defaults, these names will be hit hard on the psychological fears over what exact exposure these banks have. We do not know the exact exposure, save for Bank of America, which said it had direct exposure of $477 million to Greece as of the end of last year. If Greece were to default, there have been reports that it would be worse than Lehman Bros., when the once prestigious investment bank led by Dick Fuld filed for bankruptcy in 2008. After Lehman filed, the chaos in the banking system was not contained to just Lehman, but every counterparty it had, and made AIG's AIG situation that much worse that much faster. These U.S. banks would also certainly see the same kind of hits to their stocks, and the group can ill afford that now. If Greece does burn to the ground, these names may get hit hard, and there is no telling where the wheel will stop.