By LIZ ALDERMAN
Published: November 25, 2011
PARIS — For the growing chorus of observers who fear that a breakup of the euro zone might be at hand, Chancellor Angela Merkel of Germany has a pointed rebuke: It’s never going to happen.

But some banks are no longer so sure, especially as the sovereign debt crisis threatened to ensnare Germany itself this week, when investors began to question the nation’s stature as Europe’s main pillar of stability.

On Friday, Standard & Poor’s downgraded Belgium’s credit standing to AA from AA+, saying it might not be able to cut its towering debt load any time soon. Ratings agencies this week cautioned that France could lose its AAA rating if the crisis grew. On Thursday, agencies lowered the ratings of Portugal and Hungary to junk.

While European leaders still say there is no need to draw up a Plan B, some of the world’s biggest banks, and their supervisors, are doing just that.

“We cannot be, and are not, complacent on this front,” Andrew Bailey, a regulator at Britain’s Financial Services Authority, said this week. “We must not ignore the prospect of a disorderly departure of some countries from the euro zone,” he said.

Banks including Merrill Lynch, Barclays Capital and Nomura issued a cascade of reports this week examining the likelihood of a breakup of the euro zone. “The euro zone financial crisis has entered a far more dangerous phase,” analysts at Nomura wrote on Friday. Unless the European Central Bank steps in to help where politicians have failed, “a euro breakup now appears probable rather than possible,” the bank said.

Major British financial institutions, like the Royal Bank of Scotland, are drawing up contingency plans in case the unthinkable veers toward reality, bank supervisors said Thursday. United States regulators have been pushing American banks like Citigroup and others to reduce their exposure to the euro zone. In Asia, authorities in Hong Kong have stepped up their monitoring of the international exposure of foreign and local banks in light of the European crisis.

But banks in big euro zone countries that have only recently been infected by the crisis do not seem to be nearly as flustered.

Banks in France and Italy in particular are not creating backup plans, bankers say, for the simple reason that they have concluded it is impossible for the euro to break up. Although banks like BNP Paribas, Société Générale, UniCredit and others recently dumped tens of billions of euros worth of European sovereign debt, the thinking is that there is little reason to do more.

“While in the United States there is clearly a view that Europe can break up, here, we believe Europe must remain as it is,” said one French banker, summing up the thinking at French banks. “So no one is saying, ‘We need a fallback,’ ” said the banker, who was not authorized to speak publicly.

When Intesa Sanpaolo, Italy’s second-largest bank, evaluated different situations in preparation for its 2011-13 strategic plan last March, none were based on the possible breakup of the euro, and “even though the situation has evolved, we haven’t revised our scenario to take that into consideration,” said Andrea Beltratti, chairman of the bank’s management board.

Mr. Beltratti said that banks would be the first bellwether of trouble in the case of growing jitters about the euro, and that Intesa Sanpaolo had been “very careful” from the point of view of liquidity and capital. In late spring, the bank raised its capital by five billion euros, one of the largest increases in Europe.

Mr. Beltratti said that Italy, like the European Union, could adopt a series of policy measures that could keep the breakup of the euro at bay. “I certainly felt more confident a few months ago, but still feel optimistic,” he said.

European leaders this week said they were more determined than ever to keep the single currency alive — especially with major elections looming in France next year and in Germany in 2013. If anything, Mrs. Merkel said she would redouble her efforts to push the union toward greater fiscal and political unity.
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The beginning of the end of the worlds financial system, at least the side that is in the open that we see.