Bankers: We will not go to prison because of a new haircut

"We will not go to court accused of disloyalty after claims and lawsuits by our shareholders and the insured. If we do not ensure banks and pension funds in other ways at 100%, we are not going to give the green light to a new haircut of our bonds. "

This is what a leading banker and an insurance fund president stress on protothema.gr after the decisions of Monday’s Eurogroup for the new repurchase program of Greek government bonds, as one of the measures to make the country’s debt sustainable.

These are titles totaling 62 billion euros, of which 30 billion are held by foreign banks and funds, 17 billion by domestic banks, 13 billion by pension funds and 2 billion by individuals who participated in the PSI last February.

Any bank or insurance fund which decides to participate in this process, along with the PSI+, will lose 75 to 80% of the value of Greek bonds they were holding until the summer of 2011 because the new haircut on the new bonds will be at 2/3 of their price.

In practical terms, those who will retain the new bonds until their maturation (they end in 10, 20 and 30 years) have high hopes of getting paid at 100% of their value if the Greek economy comes out of recession, as their prices will rebound significantly. In any case, when these bonds expire the holder is obliged to pay them in full.

On the other hand, those who might deliver the bonds now under the proposed procedure will lose a large amount of their initial capital. Additionally, the process is voluntary and these bonds are governed by English law. According to leading lawyers, the shareholders who might resort to international arbitration will be vindicated.

Even the hedge funds that bought at low prices, even at 14 basis points, might not have reason to liquidate their positions at this stage, pending an improved debt sustainability outlook after new rearrangements.

In order for this project to be fruitful, it will have to include all Greek banks and all domestic pension funds that are holding bonds worth over 30 billion euros.

"If we do not receive equal consideration and additional collateral, we're not going to agree," bankers and insurance fund presidents explain on protothema.gr. It should also be noted that if the Greek government does not repay these bonds upon their maturity, there are clauses providing for the confiscation of assets in Greece and abroad.

To be precise, if the 4 systemic banks are to sell all of their bonds, they will limit their capital needs by around 1 billion euros, but this option has serious drawbacks because:

-  they will permanently lose the prospect of recovering 100% of their titles value

-  they abandon the idea of reducing their capital needs with the guarantee of bonds held at 100% of their value from the EFSF or the Financial Stability Fund (FSF)

- as they are governed by foreign law, these bonds will be paid at any rate. Thus, profits could theoretically be used to reimburse the funds they receive from the FSF towards the gradual recheck of banks

One solution is for banks to partially participate in the repurchase program in return for a guarantee of 100% of the value of the titles that will remain in their portfolios.