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The Boston Globe

Business

Banks see no big threat in Europe’s woes

More capital, less risk to allay investor fears

Davis Turner/Bloomberg

Brian Moynihan, Bank of America’s CEO, says the bank’s exposure to Europe’s debt crisis is relatively small.

Bank of America Corp., State Street Corp., and other major financial institutions in Massachusetts are closely monitoring the spreading debt crisis in Europe and reassuring anxious shareholders that they are well positioned to weather a financial meltdown across the Atlantic.

Many banks doing business in the state say they have reduced their exposure to European bonds and banks while increasing capital reserves to protect their solvency, should the crisis severely undermine the global economy. For instance, Bank of America, the largest bank in Massachusetts, has reduced its loans and other obligations in troubled European countries by 43 percent since 2009.

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The Charlotte, N.C., company said it held just $1.7 billion in sovereign debt from Greece and other shaky European Union members. The bank said its total exposure in those countries, including loans to companies doing business there, was $14.6 billion on Sept. 30 - less than 1 percent of the bank’s $2.2 trillion in assets.

“Our direct exposure is relatively small,’’ chief executive Brian Moynihan said in a recent interview.

Many investors are increasingly worried about the debt crisis, which began in Greece and spread to Ireland, Spain, Portugal, and Italy. US bank stocks have taken a beating; the sector’s shares are down roughly one-quarter this year.

The concern is that if any of these countries default, it could slam institutions that hold large amounts of the debt of these nations and quickly spread to other banks and other financial companies that do business in Europe, much in the way the 2008 financial crisis hit one institution after another.

Less dramatically, should Europe slip into recession, it would probably slow the US economy and shrink demand for loans and its other services in this country, hurting Bank of America and many other US companies, Moynihan said. “Europe’s got to get fixed, in a sense, so everyone can move forward,’’ he said.

The eurozone crisis is of particular importance to Massachusetts, because many local companies have strong financial ties to Europe. About 40 percent of Massachusetts exports are to Europe, including pharmaceuticals and medical devices. Both Boston and London are financial hubs. Many local companies, including EMC Corp. and Boston Scientific Corp., have plants in Europe. And a number of local companies, including Genzyme Corp., are owned by European corporations.

“It matters just because of the extent of trade and investment agreements,’’ said Phil Budden, Britain’s consul general in Boston. “Anything that has a chilling effect on the European market is going to matter to Boston.’’

Boston-based State Street Corp., one of the state’s largest financial institutions, recently said it does not own any sovereign debt in the countries facing the largest problems: Greece, Spain, Portugal, Italy, and Ireland. Indeed, State Street suggested the troubles might provide an opportunity to acquire businesses in Europe if weaker European competitors falter.

Two of the largest banks in the state, Sovereign Bank and Citizens Bank, are units of European banks. Boston-based Sovereign Bank is part of the Spanish banking giant Santander, which has repeatedly downplayed its vulnerability to the debt crisis.

The bank says it is one of the most profitable in the world, with diversified operations, including in the United States and several Latin American countries. Santander has also raised capital, recently selling holdings in Colombia and Chile for more than $2 billion combined.

Providence-based Citizens is a unit of the Royal Bank of Scotland Group PLC in London, which was taken over by the British government during the last financial crisis. British taxpayers own 82 percent of the bank.

Michael Strachan, a Royal Bank of Scotland spokesman, said the bank has limited exposure to sovereign debt, though it does own a bank in Ireland, one of the struggling countries. And unlike many other European countries, the United Kingdom has not adopted the euro.

Hanover Insurance Group, of Worcester, one of the largest insurance companies based in Massachusetts, recently bought a British insurer, Chaucer Holdings. It now has 800 employees in the United Kingdom, 16 percent of its worldwide total. And about 10 percent of its sales come from the United Kingdom and continental Europe.

But spokesman Michael Buckley said the company is not worried about the troubles overseas. “The vast majority of our European interest is in the United Kingdom, which is one of the healthiest and most vibrant economies in the world,’’ he said.

A Liberty Mutual spokesman said the company is “well positioned,’’ despite an unspecified amount of investments in Europe. But if the problems in Europe significantly worsen, it could hurt the US economy and financial markets, affecting US insurers more broadly, he said.

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.
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