First Greek Bailout Snag - Local Bankers Refuse To "Voluntarily" Participate In Critical Bond Buyback

Tyler Durden's picture

Those who have been following the recent developments over the Greek distressed debt buyback, which in any normal universe would have been considered an event of default but certainly not in "special cases" such as Greece where the country's official default would start the Lehman-like domino collapse as apparently getting a 70 cent haircut in 8 months is a "voluntary" event, have been quite confused by the internal dynamics. On one hand the sole beneficiary of the transaction are those hedge funds who bought the GGB2 bonds when they tanked to lows just barely in the double digits as a % of par; on the other, there is absolutely no benefit to the Greek people as a result of this sub-par prepayment, as the only fund flow benefits hit the bondholders (and it is up to Greece to figure out how to grow its GDP by over 4% per year over the next 8 years). Then let's not forget that nobody has any clue yet where the funding for said buyback will come from. And finally, as Kathimerini just reported, we learn that one group that has just vocally declared against the buy back are the very people who are supposed to be benefiting from the Greek bailout: i.e., the country's bankers.

From Kathimerini:

Bank managers are planning to express their opposition to the credit sector’s likely participation in the bond buyback program at a meeting with Finance Minister Yannis Stournaras scheduled for Thursday.


The administrations of all commercial banks are stressing that they cannot possibly participate voluntarily in a program that leads to the financial exhaustion of shareholders.

Oops, looks like the local bankers are suddenly far less "voluntary" inclined, after realizing that their equity stakes will be largely impaired in the balance sheet waterfall, which sees bonds previously marked to myth at par, remarked to 35 cents, 20 cents, or whatever the final buyback price is agreed upon, largely a function of whatever cash the Greek government can find hidden underneath the rug.

Senior bank officials told Kathimerini that besides the legal consequences of a possible voluntary participation, such a serious decision, which would signify a change in the lenders’ portfolios, cannot be approved by their governing boards alone. They underlined that such a decision would require discussion and approval at general shareholders meetings, but that would compromise the buyback plan as it is a process that takes time.

In their meeting with Stournaras the bank managers will ask for their exemption from the buyback and propose alternative solutions to the problem.

They will also request changes to the terms of the recapitalization process. The main point is how to reduce the amount of capital requirements, which could take place via the bond swap or through the guarantee of bank bonds by the European Financial Stability Facility (EFSF), which would allow for their valuation at their nominal value. That would reduce capital needs by 11 billion euros at once and render recapitalization much more attractive for private shareholders. The more funds private investors contribute in the recapitalization process, the less money the state will have to pay through the Hellenic Financial Stability Fund (HFSF).

Bank officials argue that the scheme proposed for the buyback process is bereft of financial logic as it constitutes double borrowing and additional burdening for taxpayers. By contrast, they say, the guarantee of bonds would have a better result at no additional cost. However these alternative plans were rejected by the representatives of the country’s creditors a few weeks ago and there is no sign of them changing their attitude on the issue.

Analysts say that banks are right to protest as in spring they were burdened by the 53.5 percent bond haircut and a few months later the state is asking to buy the bonds back at 30 percent of their value.

To summarize:

  • Greek banks have suddenly become the fulcrum stakeholder class, and if their "involuntary" posture is maintained can scuttle the entire bailout as (mis)conceived over the past month.
  • Hedge fund buyers of GGB2s in the secondary market are delighted by the Greek buyback as it means a 50%, 100% or maybe even higher return in months - a number which can, however, collapse if the discovered funds for the buyback are limited to single digit billions, resulting in a scramble to sell to the biggest fool and thus only bid left.
  • Greek bankers are furious as there will actually be a repricing of the fair value of the GGB2s held on bank balance sheets, and coupled with no new capital infusion from the ECB. For the fatally insolvent Greek banking system this is yet another net capital outflow it simply can not afford.
  • In effect, there is a new priming of General Unsecured obligations, as the new money will likely come at the expense of a new tranche of senior/secured debt.
  • As pertains to the Greek economy, the outcome either way is irrelevant, as there is not one penny that actually enters Greek society or its economy.
  • Also worth noting: Germany is set to vote on the Greek bailout even as it suddenly appears that the entire third Greek bailout as previously conceived is at risk of being sabotaged by none other than the very people it is supposed to be helping!

Or, in an even briefer summary: winners - hedge funds; losers - everyone else.

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Haus-Targaryen's picture

Sweet.  Burn baby burn.  

Ivanovich's picture

You guys remind me of the scene in Backdraft when Deniro is at the parole hearing of Donald Sutherland's character.  And he asks "and what would you like to do to the world?" 


Donald's character can't help himself when he smiles and looks at the whole parole board:  "Burn it all down."


GetZeeGold's picture



Mongo no likes burns.

knukles's picture

You mean to tell me that those greedy local Greek bankers don't wanna take it up the arse with a 75% haircut?


Has anybody in Europe and its infinity of alphabet organizations fighure out yet that for every bond Greece buys back the loss appears on somebody elses' books?

It fucking solves nothing!

The debt crisis is a symptom of having spent and borrowed too much.


Ghordius's picture

LOL, agree with Ivanovich. btw, your favourite party "Freie Wähler" would disagree with you on the EU, they are strongly pro-EU

see recent comment here


re: "Greek banks have suddenly become the fulcrum stakeholder class" - I seriously doubt this

all local eurozone banks will have to shut up and soldier, or else (which is nationalization, btw)

Haus-Targaryen's picture

Its interesting about the Freie Wähler, they are very anti bailout, which if implimented would guarantee the end of the EMU/EU.  If they were to come out as anti-EU they'd be pegged alongside the NDP and für Deutschland.  Its sneaky, but I can only hope it pays off.  


People like you who dode over the European project "at all costs" and continuously drink the kool-aid that if this project dies its the end of the first world are getting really old and tiring to argue with.  The economic justification for the continued existance of the EMU (and soon thereafter the end of the EU) is becoming smaller and smaller.

Ghordius's picture

me kool-aid? LOL

have a look at this discussion with walküre and tell me what you think Germany's position with the DEM would be in this currency war environnment

so the "Freie Wähler" have a fake pro-EU stance? are you sure?

GetZeeGold's picture



Don't bogey that crap Amigo.......give us a taste.

Haus-Targaryen's picture

The DEM would quickly become one of the strongest currencies in the world, making it relativly difficult to export things (when a VW Passat costs as much as a Lexis IS, VW hs a huge problem).  That being said, the Chinease have show the world how relativly easy it is to manipulate currencies to suit their export needs.  You cannot surly be asserting that the Germans would take the slaughter of their cash-cow export business lying down?  

Ghordius's picture

a strong DEM to please savers and a weak DEM to export? at the same time?

and the supply chains? let's say car parts made in Croatia?

do you have any idea how much of the "made in Germany" is in reality produced in the eurozone and assembled in Germany?

do you have any idea how business life was during the last currency war, including the last currency grid?


oh, before I forget, the diplomatic side

how old were you 1989?

did you ever "get" that Germany traded the DEM for French and Italian support for reunification anyway?

against strong British opposition?

what leads you to think that Germany is going to renege this kind of deals lighly?

for what? you don't seem to know yourself why Germany should exit the EUR

BlackholeDivestment's picture

Mervin King, ''Capital ratios may be over stated''. LMAO

Yen Cross's picture

 Forward / Z/H  Bretheren    { FUCK Merve the swerve}  I'm all over Karney

goldenbuddha454's picture

Can you please add a few more run-on sentences in your introduction next time as I only have allday to read your stories.  Sincerely, Buddha

ak_khanna's picture

Countries around the world are taking on more debt without any fruitful attempts to curb their expenditures. This has resulted in a much more fragile and artificially held up financial system which is on a much shaky ground than it was in 2008. In 2008 companies failed due to excessive leverage and debt and now countries are likely to default because they took on the same bad debt on themselves so that the bankers can continue to gamble in the commodity, stock, bond and currency markets with other people's money and enjoy ever increasing bonuses and pay packages for themselves.

A single currency for an economy as strong as Germany on one hand and relatively weaker economies like Greece or Ireland on the other is not sustainable in the long run. The idea of the stronger countries in the Euro zone to keep on bailing out the weaker ones repeatedly will be a difficult one to sell to the citizens of the economically stronger countries. Their is no practical way to save the Euro, the only thing that the politicians can do is to lavishly spend tax payers money towards bailouts which creates a much bigger crises a few months down the line but does not solve anything.

Yen Cross's picture

I I appreciate the fact Tyler is up tonight/

  The ?

jover's picture

Also, i think those bonds are used in swaps with the ecb for par value, to get acces to cash, whats that program called again?

So they need to pony up new assets to donate to the ecb for the liquidity.

Hmm, we were warned that good assets were running out.

falak pema's picture


Local Bankers Refuse To "Voluntarily" Participate In Critical Bond Buyback

Since when does an Oligarchy breed participate in its own imminent demise?

Snake eating its tail; now having to choose to spit it out or to die of suffocation. Pest or Cholera! 

No solace for the sheeple, alas! 


Yen Cross's picture


Yen Cross's picture

 J.P> Morgan Senior, had a BONER NOSE/

wEiRdO's picture

Ok, let's set some things straight.

The Greek banks have already priced the GGBs in their portfolios in market values and have already impaired the same portfolios because of the PSI - haircut in May/June 2012.

The Greek banks hold around 14.5b GGBs which in the price range asked by the Greek Govnmt .28-.35 are thus priced somewhere around 4b.

How can these CEOs accept something like that and cancel all future capital gains from a further appriciation of the bonds? Under Greek law this is considered as "Breach of Trust" and is prosecuted with incarceration...

Even a general shareholder's meeting will not approve such a move, as currently the Banks are with negative equity and as such will have their prices freefall further in the new planned share capital increase...with further dillution etc

asteroids's picture

Greek bankers were conned. They were probably promised years ago that they would be "protected" like the rest of their Euro banker cousins if they sold these crap bonds. Now, they are being thrown under the bus. I feel no sympathy towards them, only the Greek people. They really really need to default.

Dr. Sandi's picture

Greece thrown under the bus?

Thank dog the buses are on strike.

MyBrothersKeeper's picture

Man would that be a fun shareholder meeting with the bank's officials.  What the bank seems to be saying is: shaeholder approval would be required....which is not likely.  If it were forced on the shareholders, said shareholders would likely never buy another bond from that bank ever again.

Urban Redneck's picture

The Greek banks couldn't participate anyway, unless the ECB's haircuts matched the buyback offer.  Otherwise the Greek banks would be "voluntarily" deleveraging, which is tantamount to suicide when that bank is already insolvent...