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There hardly is a child who has not laughed with tears at the entertaining adventures of the naughty German nobleman who when sinking in the swamp grabs himself by the hair trying to get himself aout of the there. This funny story coming in such inconformity with any laws of physics is very indicative of the situation in which Greek bankers are now. Just like the Baron von Munchausen they are also placed in a difficult situation from which they can only escape themselves, but for this purpose they must catch themselves by the hair and make some painful decisions.

    From the swamp of government bonds ...

    Greek banks have "taken" government bonds for 40 billion euros, which currently no one buys except for the European Central Bank, and it is not known how long it will keep on doing this. Their spread-index reached their its levels from before the announcement of the aid of 110 billion euros and currently a bond of 100 euros with 30 years maturity period is sold on the market for 48 euros, despite its interest of 10 per cent. According to analysts’ assessments the chances of Greece to suspend payments on its debt in 5 years are 68.7 per cent - for comparison, those managed by the unpredictability of Hugo Chavez, Venezuela is 58.62 per cent. According to Citi Bank out of all banks in Europe the Greek have bound their fate the most to the solvency of the state precisely because of their great "opening" towards the government bonds and therefore in the event of a moratorium on the payments, they will lose 39 per cent of their capital. The average percentage for other European banks is 6 percent.
    That precisely is the reason why the image of the Greek banks disastrously falls on a world scale. It is not a coincidence that the agency Moody's decreased the credit ratings of six Greek banks - National Bank of Greece, Alpha Bank, Eurobank EFG, Agricultural Bank, Geniki and Emboriki and placed under supervision also Marfin. At the same time the Italian Unicredit lowered the expected values of the shares of the 4 largest Greek banks and predicted that, with the exception of the National Bank of Greece, the rest will finish the year of 2010 with losses. Unicredit decreased the expected value of the shares of the National Bank of Greece to 8.60 euros from 10.80 euros, of Eurobank EFG from 3 to 5 euros, of Alpha Bank from 3.90 to 5.40 euros and of Piraeus Bank from 2.90 euros to 4.70. The U.S. and JPMorgan did not fall behind, which crashed the expected price of the shares of Alpha Bank from 20 to 4.70 euros and the National Bank of Greece from 52 to 9.80 euros!

    ... in the traps of the Stress test-s

    The notorious stress test-s which Greek banks will have to pass in September do just that - explore what will happen with the banks if the recession in Greece in 2011 exceeded -4 per cent, the unemployment exceeded 15 percent, bad debts exceed 10 percent, deposits decrease by 5 percent while at the same time Greece defer payments on its debt. This scenario may seem to many too pessimistic, for Greek bankers, however, it is simply a nightmare because it is realistic. As we have repeatedly said those banks that fail the test will go in the Fund for fiscal sustainability, and hence will be loaded onto the scaffold of mergers and sales.

 According to the calculations of Unicredit if Greece defers its payments of the debt with 5 years and announced a haircut of its debts of around 50 per cent, this will reduce the capitalization of Alpha Bank to 6,7 per cent, of the National Bank of Greece to 5.1 per cent, of Eurobank EFG to 4 per cent, and of Bank of Piraeus to 2.2 per cent. As a result, the above mentioned banks will need additional capital amounting to 6.8 billion euros in order to have a chance to survive. If they are unable to find such capital the Greek State will have to acquire 21 percent of the shares of Alpha Bank, 25 percent of those of the National Bank of Greece whole 46 per cent ownership of Eurobank EFG and the enormous 62 percent of Piraeus Bank.

An exception to this scenario can only be made if the international markets decide to fund the Greek banks which have sunk deep in the swamp. Such a possibility at present seems insignificant. Currently, the market reality for the Greek banks (let's clear that the market reality and media reality are often different from the economic reality or the real one) is a haircut of about 40 to 45 per cent of the debt.

    Merger as a grip for pulling hair out of the swamp
    
    Greek banks produce 4.36 percent of the gross domestic product of the country and are therefore a key sector in the eyes of the government, which does not hide its sympathy towards the idea of mergers of banks under the Scheme 2 in 1 or even 3 to 1. In the center of most schemes stands, of course, the biggest bank in the country the colossus National Bank of Greece. Its official admited that the rumors of impending mergers are not new and are consistent in times of crisis. He neither confirmed nor denied anything, but merely said: "I can not tell you anything at the moment". Which says a lot by itself.
    So far, at least officially, bankers prefer to play single and seek outside investors. We already wrote about the interests of HSBC and BNP Paribas in the Greek banking market. This week a lot of noise was caused by the message to the announcement of the newspaper Financial Times, that the Qatar investment fund "Qatar Investment Authority" wants to buy a share of the National Bank of Greece. The management of the bank rushed to refute the information and assured that the National Bank of Greece has no intention to increase its equity capital, as it did this a year ago and at much better conditions.
    According to the weekly "Kefaleo" the mistake, however, is true and indeed Qatar Investment Authority wants to buy a share of the bank, however it was not about the National, but Alpha Bank. The Arab investment fund at the beginning wanted to buy a 4 percent stake in the Greek private bank, but later that percentage increased to a little under 5 percent. Many analysts believe that since European and U.S. markets are closed their doors for the Greek banks, it is logical for them to turn to investors from the Middle East and Asia.
    Why, however, after the market logic clearly indicates that the only solution is consolidation of the Greek banking system, it is delayed so much, and it is not happening? Due to a specific phenomenon that political scientists call

    Greek Resistance Against Reforms

    or the enviable resistance of Greece to reform or to do so as slowly as possible and as little as. In this country the philosophy "Why change, since so far as I've lived so well," flourishes as nowhere else. Of course, in the case of Greek bankers there is another point. When the number of the banks from around 10 becomes two or three many presidents, executive and managing directors, board members, etc. would lose their posts. Some will lose money, others will lose a lot of money. Therefore, the decision to merge two banks is painful for the people who manage them. It must however be taken on time. Because if delayed, we will no longer talk about a merger of banks, but we will say that one bank has bought another one. Which is a completely different story. However, it is still preferable than an end of the type Lehman Brothers.
    And as far as Greece is surrounded by storm clouds, there is no doubt about it. During the week the online edition EUobserver wrote that half of the 44 bank managers polled by "The Economist intelligence Unit", said they expect one or more countries to leave the eurozone by 2013. They point out that most likely these countries will be Greece, Portugal, Spain and Ireland. Thirty-six percent of the respondents predict a total collapse of the single European currency. Many Greek businessmen consider the option of leaving the eurozone to be absurd, but their European coleagues do not share this opinion.
    Trust in Greek banks is falling down and this is a fact that every serious banker must at least admit before himself. According to agency Reuters from the beginning of the year until the end of May 18 billion euros left Greek vaults and went abroad, which is 7.6 percent of all the deposits in them. Most often the withdrawn and transfered in foreign banks amounts were in the range between 100 and 200 thousand euros, and the holders of deposits between 10 and 20 thousand directly withdrew them and took them home.
    Like every hero, caught in a difficult situation and torn by the need to make a fateful decision the Greek bankers are also very interesting and attractive to observe and analyze. And they must get accustomed to their new place in the media. Baron von Munchausen is popular and loved until today, because he is brave and resourceful and finds a way out even from the greatest deadlock. This is the behavior that is expected today from Greek bankers as well.
    If you noticed, we did not say anything about the Cypriot banks and their presence in Greece and abroad. About them I will tell you in the next story. For as you remember the following one we saved it for the Greek insurers.