Bulgaria’s Greek Banking Ties Don’t Alarm Rogge After Bond Rout

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Not all money managers are ready to dump their Bulgarian and Romanian bondholdings as risks escalate the nations’ lenders will get caught up in the Greek crisis.

While concern Greek banking units operating in the Balkan nations will face cash shortages spurred the worst bond rout in at least eight months on Monday, Union Investment Privatfonds GmbH and Rogge Global Partners Plc said they aren’t changing their holdings.

“I wouldn’t sell, but add, if contagion kicks in more severely,” said Michael Ganske, who has an overweight rating on Bulgarian bonds and is neutral on Romania as part of the $4 billion emerging-market portfolio he heads at Rogge Global in London. European Central Bank measures to contain the fallout “will help to let the situation not get out of control. This will also be supportive,” he said by e-mail on Monday.

The two poorest members of the European Union have among the five lowest public-debt burdens in the 28-nation bloc. This means the governments can afford to prop up the four Greek lenders’ units in the countries if needed, according to Dmitri Barinov at Union Privatfonds, who kept Romania’s local-currency notes at overweight and Bulgarian Eurobonds at marketweight.

Other money managers were more guarded after Bulgaria was forced to bail out Corporate Commercial Bank AD and a subsidiary last year. Royal Bank of Scotland Group Plc downgraded both countries to the equivalent of sell on Monday, while Societe Generale SA cut Romania to hold.

‘Worsening’ Outlook

Bulgaria’s 1.49 billion euros ($1.67 billion) of bonds maturing in September 2024 slid on Monday, sending yields up 27 basis points to 3.23 percent, the most since they were sold a year ago. The rate fell two basis point at 6:30 p.m. in Sofia, while the yield on Romanian debt due the same year dropped one basis point to 3.01 percent after climbing 23 basis points yesterday.

Greece’s four largest lenders hold 28 percent of total banking assets in Bulgaria and 12 percent in Romania, according to data from their respective central banks.

That exposure is prompting Andreas Rein, a money manager at Uniqa Capital Markets GmbH in Vienna, to consider reducing holdings in both markets in the next few days.

“The short-term outlook is worsening,” Rein, who helps oversee $470 million in assets at Uniqa, said by e-mail on Monday. “The countries may face higher deposit withdrawals and sovereign bond spreads will widen, making new Eurobond sales much more difficult.”

Limited Contagion

Greece shut lenders and imposed capital controls on Monday, a measure that will deepen the country’s recession and risk driving it toward an exit from the euro. That followed a breakdown of aid talks with international creditors late Friday and an ECB decision to freeze its lifeline to the country’s lenders.

Balkan nations have erected defenses of their own. Serbia and the Republic of Macedonia on Monday introduced targeted capital controls to stem outflows to Greece. Romania and Bulgaria are counting on existing capital buffers and potential swap lines from the ECB.

“I don’t expect a huge and long-lasting contagion from a Grexit in Romania and Bulgaria,” said Barinov at Union Investment. “Their central banks have enough foreign-exchange reserves to protect their currencies and their government debt levels are very low.”

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