One of the indirect beneficiaries of the German generosity which allowed a token EUR44 billion to be released for Greece, with the bulk of the proceeds used to pay off hedge fund and Western Europe bank creditors, are Greek banks, who will fight for the remaining scraps and use them to plug their massively underwater balance sheets. However, as we reported yesterday, the same Greek banks not only want their cake, but they now have a set of conditions that must be met for them to eat it too.
Because recall that remarking GGB2s from par (where Greek banks certainly have the bulk of the post-reorg impaired debt market) to the debt buyback price will cause massive hits to Greek bank capitalization which explains the tumble in Greek bank stocks in the past few days. As such, said Greek bankers are threatening to scuttle the "voluntary" aspect of the Greek bailout as explained yesterday, unless the Greek government agrees to a set of conditions that will allow them to continue operating even after the forced remarking of Greek debt to post-Greek bailout #3 market.
Imerisia, via Bloomberg, reports these conditions:
- Greek banks at a meeting with Finance Minister Yannis Stournaras late yesterday agreed to participate in the country’s debt buyback plan, Imerisia reports, without citing anyone.
- In compensation, banks ask for full recognition of deferred tax assets in capital calculations, which would reduce capital needs by EU4bn
- Stournaras to present request to troika while saying final decision will rest with EU competition commission
- Following lender concerns, Stournaras also agreed to introduce legislation that give banks legal indemnity from potential shareholder lawsuits
Of course, reading other media, such as Kathimerini, one would be left with a far less optimistic view on the conclusion of the talks, which demands a Greek bank "voluntary" agreement to be crammed down, as otherwise CACs have to be enforced, and the entire third Greek bailout is in danger of being unravelled.
Meeting between Stournaras and bankers hits stalemate
There was no progress in the Thursday meeting between Finance Minister Yannis Stournaras and the Hellenic Bank Association regarding the issues of the bond buyback plan and the sector’s recapitalization.
Neither Stournaras nor the association’s head, Giorgos Zannias, made any statements after the meeting. Kathimerini understands that the representatives of the credit sector expressed opposition to the buyback plan, stressing that it would lead to the loss of the banking system’s private character. That in turn would have serious implications for the economy itself and the rebound effort, as it would send a negative message to investors and the markets.
The association’s representatives suggested that bank stakeholders have already suffered huge losses as a result of the original debt haircut (PSI) earlier this year and that the buyback would constitute a disproportionate burden for them.
They went on to present two alternative proposals to the minister, which they argued would reach the target of reducing the country’s debt without the economic exhaustion of stakeholders: The first concerns swapping the Greek state bonds banks hold with European Financial Stability Facility (EFSF) bonds, either directly or through the Hellenic Financial Stability Fund (HFSF); the second is less drastic and provides for a partial participation in the buyback, with the government exempting the PSI losses from tax, which could lead to a benefit of about 3 billion euros for banks.
Stournaras is said to have reiterated the need for the buyback plan to succeed, and reminded bankers that such alternatives have already been rejected by the European Central Bank and the European Commission. However, he did say he would examine the tax proposal.
Of course, since in the end this is merely an exercise in perpetuating the failed Eurozone status quo at a modest incremental cost, expect everyone to fall into place, with an end cost borne out again by German and European taxpayers, with the marginal winners both Greek and European banks. As always. Expect this to continue until such time as Greece runs out of any and all lien-free assets, at which point there will be no wealth that can be "fresh started" by the global banking syndicate, and will then be set free.