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"Arm Wrestling" with banks

31 July 2011 / 13:07:50  GRReporter
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The second rescue tranche for Greece can cost Greek banks about 4 billion euros from the bond “cuts”, but at the same time this creates a safety net for their business. The new bonds will receive a better assessment as the initial capital will be guaranteed until the expiration of its ΕFSF (European Financial Stability Fund), resulting in the smooth funding from the European Central Bank. Greece won funding from the slight reduction of the debt, but mainly it bought time in order to reduce its deficit, a fact that will contribute to stability and will restore confidence in "all that is Greek" - a necessary element for the development of bank crediting. Meanwhile the "Marshall Plan" is a prerequisite for economic recovery and maybe this will help banks to "remember" how to make profits from giving credit to individuals and companies. Naturally, analysts argue that the recapitalization program by selling rates of subsidiaries (Finansbank, Τekfen Βank, Ρiraeus Βank Εgypt) and the issuance of convertible debenture loans, if implemented in their entirety, are able to increase their capital of Greek banks by 3.5 billion euros, an amount that would nearly offset the losses of "cutting" of their bonds. In other words, do banks turn a new page? – someone would ask. The answer is "no". Loans taken from the European Central Bank at the end of June had reached the astronomical amount of 103 billion euros. Expiration of deposits from December 2009 to May 2011 reached 46 billion euros. No bank, except for Agricultural Bank, has returned capital granted by the state in the form of preferred shares (today amounted to 4 billion euros). Their profitability is marginal, and "red" loans at the end of 2010 were nearly 26.5 billion euros, an amount which at the end of 2011 because of the economic downturn will probably exceed 30 billion euros. 

Governor of National Bank of Greece George Provopoulos has decided to speed up procedures for monitoring credit portfolios by an independent company - Βlackrock may meet the requirements - which will examine whether the necessary assumptions have been made for bad debts. In the event that "concessions" are established in the write-off of loans, the Bank will seek additional damages. 

Scenarios 

Scenarios in this case are very diverse. Some will probably manage to meet those needs on their own. Others will prefer to merge and to "sell" their history to a great new formation in order to gather money from the market. Demand for capital from the Arab world and Russia might be another option. However, there also be banks, which due to their low capitalization will not be able to cover the "hole" that will occur given that the capital increase will be made at a discount of approximately 40% over the adapted stock price. In this case, owners will have to keep their banks with "blood." Otherwise, recourse to the Fund for financial stability remains the only option. The Fund now has capital worth 2.5 billion euros, which will soon reach 10 billion euros. The Fund will issue common shares to cover the capital increase and will gain control over the bank, which will seek salvation. But is nationalization of banks a solution? 

"The stability of the system is above everything. If they see that they cannot meet their financial needs, owners themselves will require support from the Fund. By law a bank can remain in the Fund not more than two years. After that the fund will have to sell it. But because the problem will be solved, the value of the bank will be increased. This way as the pressured owner awaits the recovery of the stock value, also the largest shareholder would expect this procedure to recover part of his capital. It is likely for banks to be nationalized first and then to follow the restructuring of the sector ", note market factors, trying with a few words to explain how we can find ourselves facing a big change. 

On the other hand such a procedure needs to have the government's blessing, something that at least today is not in true. On the contrary, political circles encourage the mergers of banks. Can bank mergers, however, distance the likelihood of nationalization? Probably yes, but so far no one seems ready to proceed to such actions. 

However, it would be tragic irony to nationalize a bank even after the state itself, with its "toxic" bonds, brought banks to this state. But this is only a moral dimension, which in itself cannot change the situation. Moreover, banks are guilty as well since they “took on” Greek bonds. By 2010, the bonds they held were equivalent to 200% of their equity! 

Meanwhile, another big scandal geared up in the banking sector.

National Bank of Greece put Proton Bank in "custody" mode, after the findings of the Office against crime related income, that illegal transactions were made by members of the governing board, who resigned. 

"Frozen" are the bank accounts of owner Lavrentios Lavrentiadis, who lives in London, the former CEO Andonios Atanasoglou, and six former senior officials, who are all accused of money abuse of 51 million euros. 

As announced by Proton Bank, the Governing Council elected new vice president and CEO - George Taniskidis. 

The issue with the bank is so serious that it caused the intervention of Deputy Prosecutor of the Supreme Court Panagiotis Nikoloudis with the decision of whom the bank accounts of those persons were frozen. 

Tags: Greece economy banks Proton Bank National Bank of Greece Agricultural Bank
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