Tuesday, January 08, 2013

Greek bond buyback fallout continues

As we noted in this morning’s press summary, there have been some interesting developments with regards to the Greek banking sector.

Kathimerini reported that, according to unnamed bank officials, the bank recapitalisation may now need to be larger than the scheduled €27.5bn. The reason for this is twofold:


  • First, the level of non-performing loans in Greek banks topped 24% of all loans at the end of 2012. This is a staggering amount. Keep in mind the Spanish banking sector, which has been the focus of so much uncertainty, still has non-performing loans equal to around 11% of all loans. Greece once again is in another league here.
  • Secondly, as we warned at the time, the bond-buyback had a detrimental effect on the Greek banks. Even if they did not take substantial direct losses on the bonds they submitted, they have lost out in terms of future revenue (the interest from the bonds). This is reported to amount to around €1.5bn this year.
As FT Alphaville highlights, this seems a fairly clear-cut case of the negative trade off which we highlighted at length in the run up to buyback.

Needless to say, it is not make or break and the marginal effect of the buyback is still positive, albeit fairly small in the scheme of the Greek crisis. Fortunately, there is an additional €5bn set aside for such ‘unexpected’ increases in the bank bailout, so the additional cost should not disrupt the bailout programme.

We would note as a final point, that this may not be the end of the story (not just because the non-performing loans are likely to increase further) but also because we are yet to find out what impact the bond buyback had on the Greek banks’ ability to access liquidity (an issue we discussed in detail here). Again it may not be make or break, but we suspect it could be a further negative factor for Greece to deal with - something it hardly needs.

3 comments:

  1. Greek banks are bust. They are simply kept alive by allowing what are in the end dodgy bookkeeping practices. Simply overstating the value of assets.
    This proces however is relatively easier to do with the banks than with the rest of the bail out. With the rest we have come to the edge now. In the way that any new 'disappointments' require a new bail out and with that very likely a real budget expenditure in the donor countries. Which means at that point it becomes really imteresting as basically they would require cuts at other places in the donor countries.

    With banks it is much easier to keep hiding the fact that they are bust. As least bookkeepingwise. Hard to see how any client with a brain of an ounce would want to keep his/her savings with such a bank (or a Spanish bank btw). But a lot of them still do.

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  2. Either the Greeks have been in creative accounting with the cooperation of the EU in order to make the costs of bailing out a disaster look palatable to the Germans and Finns, OR the whole project has been undertaken with an astounding level of incompetence.

    How come the due diligence did not spot this in the solvency forecasts? Maybe "there are no so blind as those who do not want to see".

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  3. christina speight10/1/13 12:18 pm

    They will persist in dragging out the agony and forcing Greece into permanent penury and dependence for its very existence on the EU. It is now as much a puppet state as the east European countries were under the USSR. This is EVIL and it's high time we said so publicly. How can we trust such totalitarian minds as those now in charge of the EU?

    The answer is we cannot and the sooner we leave the better - if Open Europe and Mr Persson will excuse the plain speaking. We cannot stay in a (so-called) partnership with those rejoicing in disaster because it brings the day of the Federal Evil Empire nearer.

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