Whilst reading an article at FT Alphaville about todays downgrading of Greek debt by Standard and Poor’s, the small table in the post showing European Bank’s exposure to Greek debt caught my eye :

You will notice that the total exposure has reduced from $272.4 billion to $193.1 billion mainly driven by Switzerland sensibly reducing their position by $75 billion quarter on quarter.

The interesting part for me, however, is the position of UK banks. Whilst Germany, the Netherlands and the UK’s exposure have all increased, the UK banks exposure has increased by the largest amount.

From the press release :

On April 27, 2010, Standard & Poor’s Ratings Services lowered its long- and short-term sovereign credit ratings on the Hellenic Republic (Greece) to ‘BB+’ and ‘B’, respectively, from ‘BBB+’ and ‘A-2′. The outlook is negative. At the same time, we assigned a recovery rating of ‘4′ to Greece’s debt issues, indicating our expectation of “average” (30%-50%) recovery for debtholders in the event of a debt restructuring or payment default. The ‘AAA’ transfer and convertibility assessment is unchanged.

Given that Standard and Poor’s are expecting large losses on Greek debt it makes you wonder what exactly our banks are playing at. Unless, that is, they know the UK government will stump up yet more of our cash to replace their losses.

This will probably not end well at all.