The risk of a run on Greek banks and an end to the euro has increased as the sovereign debt crisis continues to shake markets, according to Allianz Global Investors, a fund-management unit of Europe’s biggest insurer.
A bank run in Greece is a “real danger” and the country’s plan for a referendum on the European bailout package is a “very serious threat” to the currency, Andreas Utermann, the firm’s chief investment officer, said at a press event in Frankfurt today. “An uncontrolled insolvency of Greece and an end of the euro would unleash a tsunami that would make the collapse of Lehman Brothers seem like a small problem.”
While Utermann said he doesn’t expect Greece to exit the euro, leaving the fate of the decision in unpredictable voters’ hand boosts the risk. Allianz Global Investors isn’t preparing for a breakup of the euro area because even if Greece leaves, the common currency could be sustained by the remaining countries, he said.
An agreement between European leaders last week to boost the region’s rescue fund to 1 trillion euros ($1.4 trillion), cut the Greek debt load and recapitalize banks was sideswiped by Greece’s unexpected announcement on Oct. 31 that it’ll hold a referendum on the bailout package. Heads of state are trying to tackle the two-year sovereign debt crisis to avoid a repeat of the credit crunch and recession following the bankruptcy of Lehman Brothers Holdings Inc. in 2008.
The proposed Greek vote prompted European leaders for the first time to raise the prospect of the euro area splintering, choosing to treat Greece’s December referendum on the terms of a bailout package as an in-or-out vote on the debt-stricken nation’s future in the currency union.
“Until the referendum, we will have an extremely nervous market situation,” Utermann said, adding that it may spur other European countries to seek similar votes. European bank stocks have tumbled 9 percent since the referendum announcement, erasing the Bloomberg Europe Banks and Financial Services Index’s entire gain after the European bailout agreement on Oct. 27.
Allianz Global Investors, a unit of Germany’s Allianz SE (ALV), is “very underweight” in European banking stocks because of the sovereign debt crisis, he said. The risk of a credit crunch in other European countries has increased, Utermann added. The interbank lending market has tightened and should customers start pulling deposits, banks will cut back on lending, hurting economic growth, he said.
Munich-based Allianz said in September it will reorganize its asset-management units under a new holding company named Allianz Asset Management that combines Pacific Investment Management Co., the insurer’s largest fund manager, as well as Allianz Global Investors.