(Corrects amounts in second paragraph.)
BNP Paribas SA (BNP), France’s biggest bank, sold a net 1.5 billion euros ($2 billion) of credit- default swaps on the nation’s sovereign debt, according to data compiled by the European Banking Authority.
UniCredit SpA (UCG), Italy’s biggest lender, and Banca Monte dei Paschi SpA (BMPS) are net insurers of more than 500 million euros each of their government’s bonds, and Oesterreichische Volksbanken AG (VBPS), the Austrian lender which has yet to pay interest on 1 billion euros of state aid received in 2009, has guaranteed a net 839 million euros of its national debt, EBA data show.
European leaders have blamed credit-default swaps for exacerbating the region’s debt crisis and have gone out of their way to prevent a payout of insurance on any euro area country. The European Union is moving closer to banning the use of derivatives on government bonds for any reason other than hedging risk.
“Some of this is trading rather than pure hedging,” said Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London. “If European counties the size of France or Italy actually defaulted and triggered CDS, there would be total carnage and meltdown. It would be the end of the world, and at that stage it’s likely your counterparty would be the least of your worries.”
Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, Spain’s biggest lenders, have no net exposure through credit- default swaps to their government, EBA data show.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
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