A thriller rollover for Greek banks

When Eurozone leaders were finalizing their proposal for further support toward Greece, at last Thursday’s meeting in Brussels, as part of the basis for their involvement they included the Greek banking industry in the process of rolling over the Greek debt.

A week later, the IIF meeting in Athens with representatives of the government and Greek banks is becoming more than a mere formality; it is a major issue for the survival of Greek banks! That's because Greek banks appear weak in managing the losses arising from their participation in the rearrangement of the Greek debt.

At the meeting of the head of the IIF, Charles Dalara, with representatives of the PDMA, the Greek Banks Association, representatives of foreign financial institutions and possibly the finance minister Evangelos Venizelos, the challenge is not to persuade foreign bankers to assist in the endeavor by rolling over their share of the debt, but for the Greeks to persuade the IIF to change the membership terms in order to avoid forcing the Greek banks to resort yet again to state aid or find themselves confronted with non-manageable losses.

Everybody is cashing in their chips…

According to information so far, bankers are already pressing the government to change the rollover membership terms, as they believe that the emerging scenario, especially after the decision of Deutsche Bank to put its losses from Greek bonds (referring to a 21% haircut) onto its balance sheet, is leading Greek banks to cumulative losses of over 9 billion euros; an amount big enough to ensure their resorting to the National Fund for Financial Stability. And this is something that the government wants to avoid as well, since it would essentially mean that a big part of the share capital of banks would be nationalised (by issuing preferred shares instead of loans from the Stability fund).

Therefore, the government is seeking a solution to rescue the banks, which will appear in the crucial meeting with another ace up their sleeve. That is the outturn report already drawn up by the statutory auditors of PriceWaterHouseCooper, undertaken on behalf of the Greek Banks Association to evaluate the bond portfolios of Greek banks and draw conclusions on the damage that would result from a participation in the roll over. The experts ruled that Greek banks will lose 9 billion euros if forced into a haircut, while based on the positive scenario, their involvement in the rearrangement of the debt will bring a loss of 2,6 billion euros.

The problem is that no bank can cover 9 billion euros and all will face issues of capital survival. Thus, Greek bankers are coming in on a united front, while information says that even key shareholders will put pressure on politicians for a “flexible interpretation of the IIF proposals”.

IMF wants less of… Greece

Of course, the challenge arising from such a development is the handling of the situation by the rating agencies and the ISDA in the case of a “flexible interpretation” of voluntary participation. The IMF’s final stance in the whole affair may also be judged by this interpretation.

And it might be that the IMF agreed to participate in future financing for Greece, but with terms that were probably overlooked. In brief, these terms are saying that henceforth the Fund will pay out less money to our country in proportion to the amounts provided by Europeans. The European euros include a share in capital as profit from the exchange of debt (i.e. the rollover).

But which roll ver is this? The one decided in the last summit or the truncated one desired by the Greek banks?…