SOURCE: Paragon Financial Limited

Paragon Financial Limited

November 14, 2011 08:16 ET

Domestic Operations Strong at Royal Bank of Scotland and HSBC While Italian Exposure Shrinks

The Paragon Report Provides Equity Research on Royal Bank of Scotland and HSBC Holdings

NEW YORK, NY--(Marketwire - Nov 14, 2011) - British banking stocks have taken a hit this month as investors worry about the financial firms' exposure to Italy, Greece, and Portugal. In recent quarters banks in the UK have made efforts to cut their exposure to the Eurozone, but the latest figures published by the UK's four biggest banks show they hold a total of £42bn of Italian debt. On the upside, UK Banks are looking strong domestically, with the top four financial firms posting improved loan growth. The Paragon Report examines investing opportunities in the Foreign Banking Industry and provides equity research on The Royal Bank of Scotland Group PLC (NYSE: RBS) (LSE: RBS) and HSBC Holdings PLC (NYSE: HBC) (LSE: HSBA). Access to the full company reports can be found at:

Reporting banks based in the UK have cut their exposure to Italy by 46 percent since the end of the second quarter. The firms also cut their exposure to Spain by 38 percent, to Greece by 31 percent and to Portugal by 22 percent. According to The Telegraph of the four largest UK banks, Royal Bank of Scotland has the second largest total exposure at £9.7bn, though just £400m of this is to the Italian government debt after the bank sold off more than £2bn of the country's bonds over the summer.

HSBC has also cut its holding of Italian debt and currently holds about £4.3bn, of which about £1.6bn would be directly at risk in the event the country becomes unable to meet its financial obligations to its creditors.

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In the UK Regulators and Banks -- and the Government -- are at a crossroads. According to Britain's Financial Watchdog, regulators are having a difficult time stopping banks from calling in loans to comply with tougher capital standards. The European Banking Authority (EBA) wants banks to meet the new rules by curbing bonuses and dividends and avoiding deleveraging or scaling back loans.

UK Financial Services Authority Chairman Adair Turner said if banks are deleveraging, he would prefer to see it done in interbank trading rather than lending operations. Meanwhile, the UK Government's "Project Merlin" has sought to put pressure on banks to keep lending to businesses. According to The Guardian Britain's banks say they are on track to meet lending targets set by the government under Project Merlin. The figures have been disputed by small business leaders, however, who argue loans are becoming tougher to find, and more costly.

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