Investors should buy bearish Societe Generale SA and Credit Agricole SA options because they face the greatest risk of losses if Greece or other European nations can’t contain their debt crises, Barclays Plc said.
Puts to sell shares of those banks are more attractive than their credit-default swaps because implied volatility, the key gauge of option prices, is low relative to the realized volatility of the shares, according to a report from Maneesh Deshpande, who leads the top-ranked equity-linked strategies team in Institutional Investor magazine’s 2010 survey.
“The likelihood of the impact of peripheral sovereign events being limited to the credit markets is, in our opinion, increasingly unlikely,” the New York-based strategist wrote in a note yesterday. He cited the “political turmoil in Greece, the inevitability of restructuring at some point, the release of bank stress test results, comments by the Irish finance minister on restructuring for certain bondholders of Irish banks and potential ratings action on French banks.”
The Stoxx Europe 600 Index has fallen 8.1 percent from its highest level this year on Feb. 17. The gauge’s valuation compared with its companies’ reported earnings dropped to the cheapest since 2008 as concern mounted that Greece will fail to repay all of its debt. Greek Prime Minister George Papandreou faces a confidence vote in his government today that may determine whether it defaults.
Societe Generale shares rose 1.4 percent to 39.33 euros at 12:52 p.m. in Paris. Credit Agricole gained 1.1 percent to 10.11 euros.