So far, markets are 'stunningly quiet.' It is, however, early days. Whether or not the European Central Bank decides to continue emergency liquidity assistance to Greece, whether or not Greece defaults on the coming €3.5bn bond repayment to the ECB, the landscape in which banks are operating has shifted. Especially in Europe.
Nothing is certain, but this is what looks likely if you're a financial services professional this summer.
The financial crisis of 2008 was characterized by sleepless nights, 7 day weeks and cancelled holidays. The Greek crisis threatens a repeat: "I am back at my desk. Sunday nights are a thing again," complained one trader yesterday.
It hasn't been a bad year for M&A in Europe, but not has it been a great one. In the first six months, European deals were up around 20%, while US deals were up 47% and Asian deals were up 60%. The uncertainty engendered by the European situation was blamed. An end to this uncertainty was expected to unleash a wave of dealmaking on the continent. Instead, uncertainty has been compounded and perpetuated. This may be bad news for Europe's equity capital markets bankers too.
As the European Central Bank implements quantitative easing more aggressively to prevent contagion from Greece to other peripheral countries like Spain and Portugal, Deutsche Bank analysts are predicting increased volatility across the rates market. This could create opportunities for rates professionals, who had been struggling in the second quarter. It should also create opportunities for FX professionals, with Barclays predicting that emerging market Asian currencies will benefit from the uncertainty in the eurozone.
Credit trading professionals haven't been having a good year either. Barclays is predicting that risk aversion will increase following the Greek vote. This will be a bad thing if you work in high yield, but could create short term volume in credit trading as riskier assets are repriced and investors favour cash.
So, far the big decline in European equities predicted by Mohamed El Arian and others hasn't happened. Whether or not equities decline in Europe, it seems likely that US markets will benefit from the Greek situation. - Chaos in Europe makes it less likely that Janet Yellen will raise rates later this year as predicted.
Over a six month period, UBS is predicting that European equities will benefit from the Greek crisis as the European Central Bank unleashes all its firepower (Open Market Transactions, i.e. sovereign bond buying, and Open Market Operations, i.e. LTRO and MRO) to keep the Eurozone intact.
Ok, so this might not impact non-emerging market bankers, but it's worth bearing in mind. Barclays points out that Greece makes up the largest part of the IMF's credit portfolio. If Greece defaults, even poorer countries - like Pakistan - will end up shouldering the burden of the Greek crisis and paying higher rates. This could create pressure for Greece's debts to be covered by other members of the Eurozone, says Barclays, adding that, "in the case of Greece, it’s not the short-term contagion effects but the longer-term consequences of a Greek exit that may matter. Greece’s default on the IMF is one of them."
Most banks have dramatically reduced their exposure to Greece in the past few years. However, banks like HSBC and BNP Paribas are comparatively more exposed than others. BNP Paribas is already pulling out of capital intensive trading areas. A Greek hit - however small - may encourage it on the way.