Spanish and U.S.-based financial institutions have the highest exposure levels to Argentina, the beleaguered South American country whose recent surprise primary presidential election results have shaken investor confidence.
According to data from the Bank for International Settlements as of March 2019, Spain's banking system had $9.87 billion of exposure to Argentina's official sector, which comprises general government, central bank and international organizations. Lenders in the U.S. had $4.29 billion, followed by the U.K., which held $3.76 billion.
When including banks and the non-bank private sector, Spain's exposure totals $22.08 billion, while for the U.S. and U.K., exposures total $8.36 billion and $6.44 billion, respectively. Two of Spain's biggest banks, Banco Bilbao Vizcaya Argentaria SA and Banco Santander SA, have substantial operating subsidiaries in Argentina.

The exposure levels could become increasingly important as Argentina's economy, which already had been battling rampant inflation and persistent currency depreciation, was met with even greater uncertainty after Alberto Fernández emerged with a far-greater-than expected lead over market-friendly incumbent President Mauricio Macri following primary voting on Aug. 11. In the week since, markets across Argentine asset classes have fallen steeply, while the Argentine peso lost roughly about 20% of its value against the U.S. dollar and credit default swaps, widely seen as a measure of credit risk, nearly tripled.
The latest market turmoil adds to what has been a difficult 18 months for Argentina, which in June 2018 led to the International Monetary Fund to step in with a $57.10 billion rescue package.
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"The peso collapse will probably trigger a sovereign default," Capital Economics analyst Edward Glossop wrote in a research note, predicting that such an event could come in the next few months. Given the lower value of the peso, Argentina's public debt ratio likely will rise to 100% of GDP by the end of the year, which Capital Economics said "will be enough for the IMF to request a debt restructuring as a condition of future loan tranches." Morgan Stanley and Bank of America both see the peso falling further this year and next.
Balanz Capital noted that current asset pricing suggests an 80% to 90% likelihood of some kind of restructuring event that will result in bondholders taking a 45% to 55% haircut.
While the exposure totals for some countries like Spain and the United States continue to be large, they still represent a decline from a year ago, according to the BIS data. Spanish lenders' exposure, for instance, is nearly 21% lower year over year, while those for the U.S. and U.K. are down by about 12% and 20%, respectively.
Within the United States, data from FFIEC shows that John Deere Capital Corp. holds $429.0 million of exposure as of the first quarter of 2019. Santander Holdings USA Inc. and BAC Florida Bank, also have substantial exposures, worth $135.0 million and $120.0 million, respectively. Unlike the BIS data, FFIEC includes foreign bank's U.S. subsidiaries in their country-level tally.



