Here is a roundup of just some of the comments made by private banks and wealth managers about Greece and the risks of an exit from the euro.

Events are moving so rapidly and causing so much uncertainty that this much is certain: it is rash to give specific predictions on what may happen with Greece and whether it stays in the single currency bloc. This publication has been deluged with commentary from wealth management houses and other financial players about the agonies of Greece, the potential impact on the eurozone of a Greek exit, and the impact on investors and banks’ balance sheets. Here is a selection of some views.

Dean Turner, economist for UBS Wealth Management
Our base case remains that Greece will remain in the currency union. However, the current lack of a resolution will create volatile markets. We believe remaining invested in eurozone equities will prove the correct path over a six-month investment horizon, as ECB action should mitigate contagion effects to other markets or economies in case of a “Grexit”. The response from other central banks could also be strong. Indeed a sell-off in European equities may provide investors with a buying opportunity.

In the days ahead market volatility is likely to be high. The bond markets, in particular corporate credit, may temporarily become less liquid in this period of high uncertainty, resulting in higher risk premiums. The euro is also likely to fall sharply against the dollar.

Our base case is that Greece will not make the IMF payment, and that the creditors will not extend the bailout. However, we will be watching announcements closely. An outside possibility remains that Greece could make the payment to the IMF by tapping into emergency cash reserves.

Florian Ielpo, head of macroeconomic research, cross-asset solutions team, at Unigestion
While some volatility will likely hit global markets, we believe that the systemic implications of a Greek default are not as significant as they used to be.

We believe that Europe is not being confronted with a similar situation to August 2011. Three key things have changed: firstly, the eurozone is currently doing well growth-wise. Since November 2014, the region has seen a consistent economic recovery and continues to show signs of improvement. Secondly, the ECB has credibly created enough firepower to prevent a contagion among peripheral countries, essentially through its outright monetary transactions (OMT) programme. Finally, the Greek risk has shifted from an economic risk to a geopolitical risk to the region, with the current evolution of its relationship with Russia. From this perspective, it is in the best interest of the eurozone to make sure that Greece remains a part of the single currency zone.

In addition, it is possible that whether Greece remains in the eurozone or not would make little difference to financial markets. If officials reach an agreement, the market relief will support European risky assets (equities, peripheral bonds outside Greece). In the worst case of a Grexit, the eurozone would get rid of part of its problem. In this scenario, if the communication and actions of European leaders are credible enough to circumvent psychologically-driven contagion, markets could recover substantially, all the more as fundamentals have improved.

Since April this year, we decided to change three key elements in our cross-asset allocation. Firstly, we reduced the European equity allocation overweight, despite our positive views on the European economy, because the rally had been too rapid in our view. Secondly, we reduced the overall risk exposure in our portfolio, particularly with the US Federal Reserve’s first rate hike looming this year; and thirdly, we increased our investments’ exposure towards diversification strategies in order to reduce directional risk.
With this in mind, we are not considering adding further protection at this stage.

Burkhard Varnholt, chief investment officer, Julius Baer
While we agree with market expectations that a default of Greece on its obligations to the International Monetary Fund tomorrow is close to a 100 per cent probability, we do not think that such a non-payment would cause a meltdown in bond or stock markets for three reasons. Overall, we feel that our portfolios are well prepared to weather this storm. First, such an event is being highly anticipated. Second, almost all Greek government bonds are owned by public institutions, which will neither panic nor default themselves. Third, sadly enough, Greece really does not produce more than 2 per cent of European gross domestic product and will thus not become a "Lehman moment".
‎
Notwithstanding the above, we consider the likelihood of a Grexit extremely low. Even though the diplomatic and political fallout has made all participants angry and thus created risk of irrational outcomes, it must be remembered that a Grexit would 1) be far too calamitous and risky for all involved parties (because of uncontrollable contagion risks for other weak eurozone economies); 2) the European authorities are both prepared and equipped to preserve the integrity of the eurozone; 3) unless there is a unilateral exit from the EU, there is no legal basis to expel a member from the currency union. Thus, we would view market movements pricing in a breakup of the currency union as a mispricing that would create new investment opportunities. However, for anyone wishing to bet on or hedge against a Grexit, we would point to 30-year Swiss, German or US Treasury bonds as a natural safe haven in such a scenario. On a more general note, one would expect a strong flight to quality − which is an innate quality of most of our bond and stock holdings.

Mark Burgess, chief investment officer EMEA at Columbia Threadneedle Investments
Over the medium term, we expect the euro to depreciate due to monetary policy divergence. A Grexit scenario should in our view be negative for the euro as the fundamental viability of the monetary union is called into question. However, the reaction of the euro to recent turbulence has been somewhat unpredictable, at times appreciating on bad news. Consequently we have moved to a more neutral exposure until a clearer path is apparent.

We began to build positive positions in European equities and high yield bonds in asset allocation portfolios from the end of last year on the expectation that weaker oil, a weaker currency, more constructive private lending data, incipient quantitative easing and cheap stock and bond prices made for a positive market outlook. As stock cheapness dissipated and energy markets rebounded into April, we reduced portfolio holdings. Through a combination of macroeconomic and bottom-up analysis, we are forecasting a strong earnings outlook for European companies. But we are far from alone in this view, and the valuation picture for equities looks uncompelling absent the delivery of this strong earnings outlook.

The European earnings outlook does not look immediately compromised by events in Greece, although this will depend upon the impact on consumer and business confidence and the credit channel remaining open for creditworthy borrowers in Southern Europe. So far we have little evidence to suggest that depositor confidence in other European countries is dented or that credit conditions have immediately deteriorated, and so our positive outlook for European fundamentals is unchallenged. But the certainty with which we attach to this positive picture has diminished at the margin, and so the price we are willing to pay has reduced.

 

 

---

Paul Marson, chief investment officer of Monogram
The loan sum under discussion is just €15 billion ($16.8 billion), with a “gap” in the agreement between both parties amounting to just 0.5 per cent of Greek GDP (or about €800 million) in a broader eurozone of €10.5 trillion. A tiny, almost irrelevant, amount of money within the compositional nature of the proposals from the Troika has been enough to throw the situation into apparent chaos. Very simply, [Greek governing party] Syriza wants the rich to bear more of the burden in tax increases whilst the Troika seeks a commitment to enforcing prior agreements, firstly, a blend of tax increases and spending cuts alongside real institutional reform. Unfortunately, previous failures to enforce much needed structural changes, for example in the area of tax collection, weakens the tolerance of the Troika and lessens the credibility of the Greek negotiators.

The Greek negotiators in Brussels appear to have learned of the intention to call a referendum to allow the Greek people to accept or reject the “final” Troika proposals from the media whilst finance minister Varoufakis stated in his regular Twitter updates that “capital controls within a monetary union are a contradiction in terms”. The Greek government opposes the very concept. Just hours later banks are closed, deposit withdrawals are limited and the prime minister proposes capital controls. To say that Greek policy appears uncoordinated would be polite. Furthermore, Varoufakis also said, “democracy deserved a boost in euro-related matters. We just delivered it. Let the people decide.” The proposition that the eurozone as a whole answers to the expressed wishes of Greek voters is fanciful in the extreme. The Greek government answers to the Greek voters and it appears, when faced with the end-game in the negotiations, to have blinked first and asked the Greek people to take the decision it seems incapable itself of taking. The Greek government expects its negotiating position to be strengthened by a “no” vote in favour of rejecting the Troika proposals.
 
Local polling in recent days suggests that approximately 70 per cent of Greeks want the country to remain within the eurozone and, given a brief experience of the uncertainty and fear generated by capital controls and bank closures, we would expect that to be reflected in a clear “yes” vote in favour of compromise and agreement with the Troika. Whilst avoiding an imminent “Grexit” (this would, in any event, take many months in transition and not be an immediate event) it would certainly lead to Greek elections and another period of political uncertainty in the country. Another interim technocrat government may be necessary to manage the country in the intervening period.

Greek anger is understandable. The economy has shrunk 25 per cent and the structural budget balance has swung by an entirely unprecedented 20 per cent of GDP, but “root and branch” institutional reform, which is desperately needed, cannot be avoided and would not be addressed by default, denial and devaluation. The inflation that would, we think inevitably, eventually follow from the reissue and devaluation of a “new drachma” would represent the most indiscriminate and insidious tax on the poor, since inflation always hurts harder those with the least assets and redistributes wealth and income from the poor to the rich.

Nancy Curtin, chief investment officer, Close Brothers Asset Management
We believe that markets haven't fully priced in the possibility of a “Grexit”, so we could see some short term volatility. In the long term, European growth will probably not be derailed. The ECB's response is key, as a timely increase in QE operations could prevent an erosion of market faith and significantly reduce the probability of contagion. There is also a chance that negotiations in some form resume again. In the words of Christian Lagarde, “the door is open for further talks”.

Salman Ahmed, global strategist, Lombard Odier Investment Managers
The main factor to consider when assessing the current situation is that this is not 2011/12. The eurozone has moved significantly since the last serious episode of the ongoing debt crisis with a multitude of strong backstops now in place. Secondly, direct financial linkages of Greece are much more concentrated this time around. For instance, around 80 per cent of foreign claims on the Greek economy are now residing with official institutions, thus limiting the direct impact on the global financial system. In essence, the current situation is more about political credibility of the eurozone rather than direct financial implications of a Greek default. Lastly and perhaps most importantly, the ECB is already engaged in a QE programme and has at its disposal the OMT [outright monetary transactions] tool (recently green-lighted by the European Court of Justice), which has been designed specifically for this kind of situation.

Credit Suisse
The referendum called by Greek prime minister Tsipras on the proposals by the “institutions” (IMF, EU and ECB) is effectively a vote on euro membership. Our base case is that Greek voters will support staying in the euro.

Political change and an agreement with creditors on a multi-year extension of the bailout programme are then likely to follow. In the coming days, investors must be prepared for a “risk-off” phase in financial markets. However, in case of a euro-supportive vote, this would in our view be followed by a significant recovery. In the unlikely case that the Greek voters reject the offer made by the creditors, a Greek exit from the euro (Grexit) will become more likely, and setbacks in risk assets could be amplified. However, even in such a case, we would expect a market recovery, as the ECB steps in to halt contagion in other vulnerable countries.