UK Companies 'Braced For Grexit'

UK Companies 'Braced For Grexit'
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UK firms and investors are bracing themselves for the impact of a possible Greek exit from the euro amid increasing fears that the debt-laden country will not reach a deal to avoid going bust.

As an export market, Greece is worth £1 billion a year to the UK, representing just 0.3% of overseas sales.

But it is the wider fall-out of the crisis for the eurozone and that will cause most anxiety for British companies as well as investment funds including pensions.

The single currency bloc is the UK's biggest trading partner while industry data suggests there is £55 billion held in unit trusts investing in Europe.

Many of London's biggest listed firms have much of their business on the continent, or trade with it, so economic distress from a chaotic Greek exit would be likely to wash across the Channel.

It means that while the outcome of the crisis remains uncertain, the FTSE 100 Index is subdued with investors cautious over the outlook. The top-flight index has fallen by 5% since the start of June.

UK-owned banks would stand to lose a maximum of 12.2 billion US dollars (£7.7 billion) should Greece's economy implode, according to latest Bank of England statistics

But while a large sum, this represents a small "ultimate risk" compared with that riding on much larger world economies such as the United States, where the figure stands at 965 billion US dollars (£607 billion).

Among top UK-listed firms with operations in Greece are Vodafone, whose income from the country represents 2% of group revenues.

Last year it bought a controlling stake in broadband and fixed line provider Hellas Online for 72.7 million euro (£52.1 million).

Electrical to mobile retailer Dixons Carphone also has a large presence in Greece and chief executive Seb James earlier this month told the Independent it had drawn up a detailed plan in case of a euro exit.

Greece desperately needs to unlock bailout funds worth 7.2 billion euro (£5.2 billion) to pay upcoming debts, but talks with creditors are deadlocked over their demands for reforms and budget cuts.

It faces a looming deadline on June 30 when it is due to pay 1.6 billion euro (£1.1 billion) to the International Monetary Fund (IMF).

But there is speculation that if no deal is reached in coming days a last-chance emergency summit this weekend could be held before a run on Greek banks potentially begins at the start of next week.

Capital controls – limiting withdrawals from the banks – could put the brakes on this process but if the lenders become insolvent the European Central Bank (ECB) could be forced to withdraw the emergency assistance that is keeping them alive.

John Longworth, director general of the British Chambers of Commerce, said many UK businesses could be hit by market upheaval, changes in trade patterns and payment issues on the event of "a messy Grexit" that looks increasingly likely.

Analysts at Hargreaves Lansdown estimate that the typical UK pension fund has around 15% invested in Europe and around 35% in the UK.

But head of research Mark Dampier said a Greek default "no longer threatens to bring about a systematic collapse of the European financial infrastructure".

Greece's difficulties have long fuelled fears of contagion to other debt-ridden eurozone countries – that they would be shunned by investors and find it increasingly expensive to raise funds by selling parcels of debts, or bonds, on markets.

But with the ECB currently pouring 60 billion euro (£43 billion) a month into the financial system in a quantitative easing stimulus programme, the risk appears to be reduced.

Mr Dampier said: "Any run on the sovereign debt of euro members outside Greece will surely be met by huge buying from the ECB.

"This, in effect, could safeguard the European banks who have huge amounts of this debt on their balance sheets."

Experts at Capital Economics expect shares to fall by 10% with a Greek exit. But factors such as the weak euro helping growth – and the scope for this to boost profit margins – plus the limited risk of "contagion", should halt a further slide, they argue.