Greek Deposits Become Eligible For Bail-In On January 1, 2016

Tyler Durden's picture

Earlier today, tucked away from the public's eyes, there was another round of drama involving Greek securities this time focused on Greek senior bank bonds which promptly tumbled back to post-referendum/pre-bailout #3 levels.

The catalyst was Friday's pronouncement by Jeroen Dijsselbloem who said depositors will be shielded from any losses resulting from the restructuring of the nation’s financial system, but that senior bondholders would certainly be impaired and probably wiped out. In other words, once again the superpriority of various classes has been flipped on its head with general unsecured liabilities ending up senior to, well, senior bank claims.

As Bloomberg reported earlier today, while "Greece’s third bailout will spare depositors in any restructuring of the nation’s financial system, senior bank bondholders may not be so lucky, according to comments from Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem. The bondholders will be in line for losses if Greek lenders tap into any of the financial stability funds set aside in the new bailout."

“Bondholders were overly optimistic because bail-in of senior bonds was not explicitly mentioned before,” said Robert Montague, a senior analyst at ECM Asset Management in London. “Today they were brought back down to earth with a bump."

Which is bad news for bondholders, but the biggest losers will once again be depositors who represent the vast bulk of unsecured Greek bank liabilities.

Going back to Friday's statement by the Eurogroup president, he specifically said that "the bail-in instrument will apply for senior bondholders, whereas the bail-in of depositors is explicitly excluded."  Which is confusing considering that bank stocks were broadly unchanged and in some cases rose. Of course, this makes no sense because as even a first year restructuring associate will tell you, according to traditional waterfall analysis, even the lowliest bond impairment means an equity wipeout. And yet, Greek bank equities are still trading at far more than just tip/nuisance value. Which, to repeat, makes no sense.

But that is not surprising: little of what Europe is doing with Greece makes any sense. Other agree:

"It is not clear how they will make it possible to bail-in bonds while excluding deposits, but as we have seen in other problematic situations, where there is a will there will be a way,” said Olly Burrows, London-based financials analyst at brokerage firm CRT Capital. "We call Dijsselbloem’s solution a bail-up: part bail-out, part bail-in and part cock-up."

And yet, it appears that following the weekend, Europe realized that it is now openly flaunting the conventional restructuring protocol.

As a reminder, Greece’s euro-area creditors made adoption of the European Union’s Bank Resolution and Recovery Directive, or BRRD, a precondition of the bailout. The directive, which makes it easier to impose losses on senior creditors, should rank senior unsecured bondholders and depositors equally, said Olly Burrows, London-based financials analyst at brokerage firm CRT Capital.

This is something which Dijsselbloem may not have been aware of when he said that one senior class would be impaired while another pari passu group of liabilities, i.e., depositors, would be protected. As noted above, that makes no sense.

Which is probably why earlier today, Bloomberg followed up with a report that a recapitalization of Greek banks will exclude all depositors from losses until the EU’s Bank Recovery and Resolution Directive rules go into effect on Jan. 1, citing an EU official.

Needless to say this was vastly different to Dijsselbloem's blanket guarantee statement, and suggests that depositors will indeed be bailed-in (if mostly those above the €100,000 insured limit, although as European history has shown, rules will be made up on the spot and we would not at all be surprised if deposits under the insured limit are also confiscated), but not right now: only after BRRD rules come in place on the first day of 2016.

Europe's eagerness to promise depositor stability is transparent: the finmins will do everything in their power to halt the bank run from banks which will likely be grappling with capital controls for months if not years. Still, absent some assurance, there is no way that the depositors would be precluded from withdrawing all the money they had access to, which in turn would assure that the €86 billion bailout of which billions are set aside for bank recapitalization, would be insufficient long before the funds are even transfered.

According to an Aug. 14 Eurogroup statement an asset quality review of Greek banks will take place before the end of the year,

"We expect a comprehensive assessment of the banks – so-called Asset Quality Review and Stress Tests - by the ECB/SSM to take place first," European Commission spokeswoman Annika Breidthardt tells reporters in Brussels. “And this naturally takes a few weeks."

In other words Europe is stalling for time: time to get more Greeks to deposit their cash in the bank now, when deposits are "safe" and while everyone is shocked with confusion at the nonsensical financial acrobatics Europe is engaging in.

But once Jan.1, 2016 rolls around, it will be a vastly different story. This was confirmed by the very next statement: "I must also stress that, depositors will not be hit” in this year’s review, she says.

In this year's, no. But the second the limitations from verbal promises of deposit immunity expire next year, everyone who is above the European deposit insurance limit becomes fair game for bail-in.

Dijsselbloem concluded on Friday that "Depositors have been excluded from the bail-in because in the first place it’s concerning SMEs and private persons. But it is only concerning depositors with more than 100,000 euros and those are mainly SMEs. That would again lead to a blow to the Greek economy. So the ministers said we will exclude them explicitly, it would bring damage the Greek economy."

Right, exclude them... until January 1, 2016. And only then impair them because Greece will never again be allowed to escape a state of permanent "damage" fo the economy.

As for Greeks and local corporations whose funds are parked in a bank and who are wondering what all this means for their deposits, here is the answer: for the next 4.5 months, your deposits are safe, which under the current capital control regime doesn't much matter: it's not as if the money can be withdrawn in cash and moved offshore.

However, once January 1, 2016 hits and Greece becomes subject to a bank resolution process supervised and enforced by the BRRD, all bets are off. Which likely means that as the Greek bank balance sheet is finally "rationalized", any outsized deposits will be promptly Cyprused.

For our part, we tried to warn our Greek readers about the endgame of this farcical process since January of this year: we will warn them again - capital controls or not, pull whatever money you can in the next few months because once 2016 rolls around, all the rules change, and those unsecured bank liabilities yielding precisely nothing, and which some call "deposits" will be promptly restructured to make the Greek financial balance sheet at least somewhat remotely viable.

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Atomizer's picture

Well fancy that, colour me shocked. 

Budnacho's picture

*sits down, opens bottle of Bourbon...*

 

*makes Toast* .....Ahh Greece........Thank you for all the entertainment and Future Entertainment you will bring!

Normalcy Bias's picture

Mr. Panos is sorely missed...

salvadordaly's picture

If I were Greek I would walk in my bank with a withdraw slip for the balance of my account. If they refused I would promptly pull out my gun and rob the place, for my account balance only of course.

holdbuysell's picture

Bank.

 

The new four-letter word.

Soul Glow's picture

From the IMF report "Taxing TImes" 2013 - 

A One-Off Capital Levy?

The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”— a one-off tax on private wealth—as an exceptional measure to restore debt sustainability.1 The appeal is that such a tax, if it is implemented before avoidance
is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair). There have been illustrious supporters, including Pigou, Ricardo, Schumpeter, and—until he changed his mind—Keynes. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away (these, in turn, are a particular form of wealth tax—on bondholders—that also falls on nonresidents). 

Taxing TImes, pg 49 -

https://www.imf.org/external/pubs/ft/fm/2013/02/pdf/fm1302.pdf

kuro_neko's picture

they should take all their cash out of the bank...

or spend it all out... with a credit card, buy gold, bunds, anything...

davidalan1's picture

so they can print their own money but need to bail in? fuckin incredible

 

 

 

Dark Daze's picture
Dark Daze (not verified) Aug 17, 2015 11:13 PM

This is going to end in revolution, and war.

kchrisc's picture

I take on deposit your money in trust so as to facilitate safe keeping and ease of conducting transactions.

Afterwards, I steal your deposit, and then use it to counterfeit more theft from you, your neighbors, and the rest of your countrymen. Thanks to all of this grift on my part, I live large--much larger than you.

At some point I tell you that I no longer have your money, but will be happy to give you stock in my criminal enterprise--making you a criminal like me. Despite this revelation of theft and bankruptcy, I continue to live large--much larger than you.

And people still think that a guillotine is overkill.

Liberty is a demand. Tyranny is submission.

 

punkasscrab's picture

Jeez dude kchrisc, you have to be top ten on an NSA list or two.

kchrisc's picture

I'm working on it.

However, I am only formulating and practicing the message here on Zerohedge.

The real action is person-to-person--grabbing them by their psyches and taking a huge truth-shit right between their ears.

However, guys like me don't have a long shelve life though.

Will end in blood and mud on a battlefield, or more likely, by a bullet in one of Zion's dark and dank basement cells.

Liberty is a demand. Tyranny is submission.

 

wendigo's picture
wendigo (not verified) kchrisc Aug 18, 2015 12:15 AM

There may come a day when I have to defend my existence with a rifle. I may have to call other men to my aid. Your words will give me strength.

Serious post. You have put words to my anger and no matter what happens, always remember you touched at least one life.

Rogue Trooper's picture

Quality post, one of the best I have read over the period I've been on an off this darn site.

To quote you.... "However, guys like me don't have a long shelve life though.

Will end in blood and mud on a battlefield, or more likely, by a bullet in one of Zion's dark and dank basement cells."

Yes, but it is all about ones personal integrity and the conviction to make that stand if compelled too by any oppressive and injust state force.  This is what the founding fathers and that 1st and 2nd was all about IMHO.  They cannot take that inner conviction away from a free man.  From a non-American I hope you understand that this is important to the wider world as cannot be allowed to disarm you because that will have a domino effect globally.  Without you we will have to use bolt-actions (if lucky), stones, kitchen knives and altough that will be although not impossible, let's face it, somewhat of a challenge!

In a small way the Bundy 'incident' called their bluff.  They had to decide if they instruct the 'tools' to open up on a bunch of oath keepers and other citizens.  They realised that they where not fully prepared, more planning was required and centralised cunning.  So yes, we are all on their 'target' list and they continue to plan, probe and test.

What will be will be, there are many that are not on their 'list', including some inside their 'system'. 

Lanka's picture

The game changer for the Bundy ranch was that they put the names and addresses of the BLM agents on the internet. Any mis-step by the agents would have led to retribution. 

Joe A's picture

Anybody that has ever replied here on ZH is.

Fuku Ben's picture

Dear Greece,

Here is a gentle reminder just in case you don't remember the historical lies that were told to reassure Cyprus depositors right before they were "legally" robbed.

Better be wise by the misfortunes of others than by your own." - Aesop 620–564 BCE)

http://www.howtovanish.com/images/central-bank-cyprus-letter.jpg

Sincerely,

Your Friends at Zero Hedge

Atomizer's picture

Bourgeoisie bailout has turned into financial bedwetting. 

PGR88's picture

Greece is a corrupt, shithole 3rd world country that just happens to be on the periphery of Europe and subject to the EU's political schemes.

Whatever you would expect for an African or Central Asian kleptocracy, will eventually happen in Greece also.

Cloud9.5's picture

Look  in the mirror.  What you describe is all around you.

bad craziness's picture

Its obvious what they are doing here.  Do not create any more riots around bail-ins until next year so those that they want to prevail can prepare.

Mintcoin's picture

Letting the Insiders get out before the bailin.

Atomizer's picture

Here's a tip, the most astute morons in Brussels are going to lose their life line in mid-September. 

Blows a kiss. Hahahahahaaa. 

dreadnaught's picture

>>>Here's a tip, the most astute morons in Brussels are going to lose their lives life line in mid-September. 

Joe A's picture

Dijsselbloem lies all the time and is not to be trusted. In his own country where he is finance minister he lied that he did not know about a extra payment and the amount of it that Holland needed to pay to the EU (because the economy did better than expected). Under open and transparent governance regulations, communication with the EU showed that he and the Dutch government were well informed about it. He lies.

cwsuisse's picture

In any event the Greek bank-recap is going to be chaotic. I am convinced that the 25 billion earmarked for the banks shall not suffice. Let us recall that the ECB is sitting on about 100 billion ELA loans it has not yet written off, which I take as a sign they want their money back. There is a political will in the EU to avoid a bail-in because that would sink Tsipras politically and it would further hamper the economy to the extent this should be still possible. But of course the avoidance of a bail-in would be inconsistent with the EU-wide adoption of the BRRD directive. It is not unfair to assume that the political will to avoid a bail-in ends if the 25 billion for recapitalization should not suffice and any amount additionally needed beyond 2015 would fall under said directive. Greeks who were silly enough to keep accounts in excess of 100k: run and take your money if you can.

JustUsChickensHere's picture

Just Greece? That directive covers all 28 EU countires. 

Add to that, the entire G20 agreed (Nov 16, 2014) to put into legislation the same stategy - and they all have now done so.

Mintcoin's picture

The end is near. Repent and believe the Gospel. The power of love and truth is the only force that has no greater. 

AbbeBrel's picture

Run Dummest, Run!!

https://www.youtube.com/watch?v=QgnJ8GpsBG8

This will go on longer than you think it can, and then will start again in another form. Too soon old, too late wise.

Latitude25's picture

Yeah well my fucked up bank WF stopped Saturday business hours recently and then just the other day the on line button to transfer money from one account to another stopped working.  Now a friend of mine in Fiji reports that his ANZ and Westpac accounts are having all sorts of online problems.  He wants to pull his money out.  If you don't at least have cash you better wake the fuck up and go down and get some.  This shit's going down really soon.

AbbeBrel's picture

China Plunge Protection Team (PPT) having Problems today (3,748.16 -245.50 (-6.15%)). Aussies are likely to follow China into the crapper. Not much to go before the All Very Ordinaries are under the lows of 2014, then look out below. Cheers and put a beer on the barbie for me :-)

Latitude25's picture

And the online button still doesn't work and the phone in number was swamped with calls and the teller gave no explanation for this shit.

AbbeBrel's picture

AUD (Aussie Dollar) is down 21% in one year. I am now realizing that this estimated $10 TRILLION in OFFSHORE US Dollar based debt is the decomposing elephant in the room that very few folks are talking about, especially in the LameScream media.

The $10 TRILLION number is an estimate by Zulauf, and based on the BIS paper.

Compare $10 TRILLION to the US National debt - it is "only" $18 Trillion, and when will that get paid off (spoiler: never!!). So when will $10 TRILLION of offshore debt get paid off? Well the BRIC's and their buddies - who sold the dollar based bonds and such to Reach For Yield True Believers - who probably still believe they will be made good on their investment - aren't likely to cover *all* of this bulging credit card debt. But in the meantime they are going to be buying US Dollars and selling their currencies like crazy on every USD dip. Therefore all "Emerging Markets" are all more like "Submerging Markets" during this Great Unwind of Debt Based Madness.

And as for the Aussie Dollar ? Throw a few more on the Barbie for me...

smacker's picture

"...[it] suggests that depositors will indeed be bailed-in (if mostly those above the €100,000 insured limit, although as European history has shown, rules will be made up on the spot and we would not at all be surprised if deposits under the insured limit are also confiscated)"

This should be noted because when the SHTF, the UK and other EU countries will also brush aside the Deposit Guarantee Schemes if it suits them.

They will simply argue that Deposit Guarantee schemes only apply if/when a bank goes belly up and the whole purpose of bail-ins is to prevent that from happening, so deposits bailed-in are not covered.

And as we already know, banks are making it increasingly difficult for people to withdraw large sums in cash and other forces are at work to outlaw the use of cash anyway. 


XAU XAG's picture

@smacker

 

Concur

 

That is how I see it going down.....................you are only have DOT GOV INSURANCE if they go bust. Not bailed in to survive.

 

PS In the UK they are advertising the Guarantee in the media allot of late.............a worrying sighn

 

 

https://www.youtube.com/watch?v=HvfQSXR7tXw

smacker's picture

"In the UK they are advertising the Guarantee in the media a lot of late.............a worrying sign"

Indeed. Everywhere I look, I see adverts about it and even get copies of it attached to online bank statements. And the leaflets never mention what happens when a bail-in happens.

And of course in the UK w/e/f 01-Jan-2016 the amount supposedly covered is being reduced to £75,000.

XAU XAG's picture

And that is due to the strength of the £ LOL

Winston Churchill's picture

Read the fine print my friend.You are bailed in in shares.

Shareholder losses are not covered by govt. depositor insurance.

Any money in the bank is at risk, no matter how small an ammount.

Its a sleight of hand to get govt. off the hook.

Rastech's picture

Don't suffer from the illusion that this "Bail In" (outrageous theft) will just apply to the Greeks.

 

The EU forced all member States to have the "Bail In" (outrageous theft) mechanisms in place by the end of last month.

XAU XAG's picture

The EU forced all member States to have the "Bail In" (outrageous theft) mechanisms in place by the end of last month.

 

 

OR they would be legal action

http://theeconomiccollapseblog.com/archives/why-is-the-eu-forcing-europe...

newsoutlet's picture
newsoutlet (not verified) Aug 18, 2015 6:18 AM

A steep decline in the rouble has hammered Russian carmakers by driving up the cost of the foreign parts they rely on, forcing them to raise prices at home and making them uncompetitive abroad.

After a decade of annual sales growth in excess of 10 percent, the Russian car industry is now a victim of an economic crisis fueled by lower oil prices and Western sanctions over Moscow's role in the Ukraine crisis.

Domestic car sales have halved from their peaks in 2012-2013 when during some months the country ranked ahead of Germany as Europe's largest car market by sales, and the eighth biggest in the world. It now ranks only fifth in Europe and 12th globally.

The ruble's decline has pushed up Russian carmakers' costs as - unlike rivals in other leading carmaking nations - they heavily depend on imported parts, which they pay for in dollars and euros.

Back in 2012-2013 the rouble was trading at around 30 per dollar; the current rate is about 65 - which effectively makes imported parts about twice as expensive.

This has forced automakers to raise prices - a desperate move in a country where the economy shrank by 4.6 percent in the second quarter of 2015. Employers have cut staff and wages, while annual food price inflation is running at over 20 percent, leaving many Russians with little money for big purchases.

A renewed drop in the rouble - it has fallen 15 percent against the dollar since the beginning of July and is trading near a new six-month low - is set to prompt more price hikes and further erode sales.

"If the rouble steadies at the current rate until the end of the year, then the market is set to decline by 28-30 percent," said VTB Capital analyst Vladimir Bespalov.

"But if the rouble continues to weaken, prices will rise and the market could fall by up to 35 percent."

 

'REACHING CRITICAL POINT'

The overseas market also looks bleak.

While a weaker domestic currency usually makes exports more lucrative, Russian carmakers' reliance on expensive foreign components has left them uncompetitive against rivals from the likes of Japan and South Korea who source the vast majority of parts at home.

Russia's auto exports fell 27 percent to 49,000 vehicles in the first six months of 2015, year-on-year, customs data showed. The bulk of vehicle exports go to Commonwealth of Independent States (CIS) nations such as Belarus and Kazakhstan.

Volkswagen (VOWG_p.DE) and Ford (F.N) both import more than half of all parts used to assemble their cars in Russia. Even market leader Avtovaz (AVAZ.MM), which produces Russian brand Lada among other models, sources about a fifth of its production abroad.

Stung by its low level of local manufacturing, U.S. carmaker General Motors Co (GM.N) quit Russia's ailing market in March.

Russian authorities have introduced incentives to encourage carmakers to gradually start producing most parts locally, but the most expensive and technologically advanced parts such as electronics, engines and suspensions are still imported.

KIA Motors (000270.KS), which produces Russia's second-most popular car - the New Rio hatchback priced at 460,000 rubles ($7,235) - has raised prices by 15 percent in the first six months of this year.

In the same period, average car prices have risen 18 percent year-on-year to 1.16 million rubles ($18,420) and sales have fallen 36 percent, according to research group Autostat and the Association of European Businesses.

 

"The devaluation of the rouble increases costs for manufacturers," said Yulia Dytchenkova, director of Mazda (7261.T) dealer Rolf Khimki. "They are reaching a critical point where the further revision of price lists is inevitable."

IndianaJohn's picture

Lada is the answer to the digital failures. Russia has long known how to build a successful analog car. Even if it was a homemade Fiat 124. The modern digital operated car is good until sensors and computers fail. Often within a year or two. After then it is an abject failure, partly because the owner is unable to make his own repairs. The rest of the failure lies in the fact that the more complex systems become, the more likely they will fail.

Anybody can sit on their ass with digits. It's analog if you want to move. Bitches.

smacker's picture

Did you notice there's a global currency war going on?

It's not just the Russian Ruble that's volatile....take a look at that fake currency: The Euro.

AngelaTwerkle's picture

We've got to destroy the deposits in order to save the deposits.

EurGold's picture
EurGold (not verified) Aug 18, 2015 7:42 AM

Buy Gold, Silver, Platinum and Palladium Bullion Bars and Coins with Euro, Great British Pound, US Dollar and Bitcoin.

https://www.eurgold.eu/

quietdude's picture

I wonder why Greeks are not stocking up on non perishable food? Fifty pounds of rice will look good if the banks close. A couple cases of good whiskey will be good tradestock.

Downtoolong's picture

Happy New Year, you're broke.

TweedleDeeDooDah's picture

So basically, if you are a rich Russian who has been dumping money in the country since Cyprus, you now know that the Central Scrutinizer is actively watching every cent you are holding in Greece, and monitoring it's every possible movement.