A missing €34bn of German exposure to Greece?

BIS figures show that German banks had €45bn in cash credit exposure (excluding contingent liabilities) to Greece, as of 31 December 2009. The largest German banks, which account for over 60% of German banking assets, have disclosed only 25% of their Greek exposure, by our estimates as seen in Exhibit 2 attached. We would not expect to find Greek exposure in the smaller German institutions and question where the remaining 75% of Greek exposure resides.

We believe that some German banks may not be disclosing the full details of their Greek sovereign exposure due to hedging via CDS contracts. We note that if Greece eventually undertakes a voluntary restructuring of its debt, CDS contracts may not trigger. As such, these banks would face wrong-way earnings risk from the need to write-down their Greek exposure and the value of the CDS contracts. We expect this to equal increased volatility in higher beta debt of German issuers.

http://ftalphaville.ft.com/blog/2010/05/17/232616/a-missing-e34bn-of-german-exposure-to-greece/