After trading limit-down on Monday when Greek stocks opened for trading for the first time since PM Alexis Tsipras called a referendum that would later prove to be a complete waste of time, shares of Greek banks once again flirted with the daily 30% loss limit on Tuesday as there were simply no bids for a set of institutions that everyone knows is insolvent.
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The banks, which are only operational because the ECB has decided to keep the ELA liquidity drip on at least until the central bank sees whether or not Greece will be able to make a €3.2 billion bond payment on August 20, are in desperate need of recapitalization, and according to Brussels’ estimates, will need somewhere on the order of €25 billion to stabilize the system.
Of course that total effectively grows by the day, as the collapsing Greek economy (and we mean "collapsing" in the most literal sense of the word after yesterday’s astonishingly bad [10] PMI print) takes its toll, driving up NPLs in a vicious circle wherein capital controls meant to stem the deposit outflow cripple the economy which in turn serves to further cripple the banks.
Speaking of this self-feeding loop, here’s Kathimerini with more [11] on how the banking sector deep freeze has reverberated through the broader economy:
The state’s losses from indirect taxes alone in the first couple of weeks of capital controls and the shuttering of banks is more than half a billion euros, according to a study published on Monday by the Hellenic Confederation of Professionals, Craftsmen and Merchants (GSEVEE).
The drop in consumption in the first two weeks after June 28 amounted to 50 percent, or 3.8 billion euros, with corporate turnover falling 48 percent on average. This meant the state coffers missed out on 570 million euros in taxes.
Nine out of 10 enterprises reported a decline in turnover, with three in 10 seeing a drop of at least 70 percent.
The medium-term impact will be more serious, argued the report, as it is unknown for how long the capital controls will remain in place, and small and medium-sized enterprises are in a difficult position as the measures came during a period when they were completely defenseless.
Meanwhile, Greek FinMin Euclid Tsakalotos is meeting with the country’s creditors today to discuss the recap effort. Here’s Kathimerini with that story [12] (Google translated):
The issue of recapitalization also becomes urgent, given that the aim is the share capital increases of the four systemic banks to be completed in October. The timetable provides that the details of the stress test (under way) will be known on September 4, and, based on them, they will proceed with the recapitalization, which will require at least 10 billion. However, the final amount will depend on the assumptions to be adopted in the stress test, the most important is the economic downturn and the duration will, handling deferred tax and the management of non-performing loans.
