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Only Alpha Bank has chances to remain private

13 December 2012 / 16:12:35  GRReporter
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Three of the four largest banks in the country will not be able to provide the 10% capital increase provided by the financial rescue plan for the financial sector, which was prepared by the government, Greek financiers commented. If shareholders want to keep their banks independent from government interference, they will have to raise one-tenth of the required funds in order to raise their capital, according to the requirements of the Bank of Greece's Supervisory Authority. The rest will come from the Hellenic Financial Stability Fund, which is funded by the assisting loans by Europe and the International Monetary Fund. According to forecasts, of the four largest Greek banks, which include Piraeus, Eurobank, the National Bank of Greece (NBG) and Alpha Bank, only Alpha Bank will be able to meet these requirements and avoid nationalisation. To Vima reported that private shareholders will have to raise between 1.5 billion euro and 2.5 billion euro additional capital in order to pass the 10% barrier set by the government. The prospect of investing money in order to cover old losses, does not seem attractive to prospective investors, and Greek analysts predict that the banks' rescue will remain exclusively in the hands of the state.

Meanwhile, it became clear that the average redemption price of Greek government bonds, which the government announced earlier this month, amounted to a debt of 33.8 cent per euro. Greece managed to raise back bonds with a nominal value of 31.86 billion euro, for which it has to pay investors 11.3 billion euro. The money will be granted by the European Financial Stability Fund (EFSF).

The problem is that the amount, which was initially approved for the Greek buyback, was 10 billion euro. This is higher than the expected average price, which raised the bar and now the country is 1.3 billion euro short to cover accepted offers for the repurchase of debt. Where to find additional funds to cover the difference from will be decided at a meeting of the Eurozone's Finance Ministers, who, on Thursday, finally approved the grant of the 34.4 billion euro financial assistance. The money will be injected into Greece's bank account on Monday, and about 24 billion euro of this will be forwarded immediately to rescue local banks.

Greek government bonds, which are held by four of the largest local banks, lost 74% of their nominal value in less than a year. Pruning down external debt, held by private investors, in half (PSI) and redemption of bonds with a nominal value of 31.86 billion euro caused serious damage to the balance sheets of Greek financial institutions. Actually, losses recorded for the same institutions reached 26.5 billion euro, moneyonline announced.

While private investors are estimating their losses caused by the reduction of debt burden for the country, the government found out that the buyback will not have the expected effect. The exchange of part of the debt resulted in a 9.5% external debt relief by 2020, which, however, differs from the initial plan, which included a debt to GDP reduction by 11%, so that it would reach 124% of GDP. If restructuring had not happened this winter, next year, the Greek debt might have exceeded 190% of GDP.

Head of the International Monetary Fund Christine Lagarde welcomed the decision of the Eurogroup to support Greek buyback, so that the country could achieve a primary budget balance in 2013. Lagarde gave the green light for the aid from the Fund and announced that the next meeting regarding Greece, will be convened next January.

Although politicians said that the process of bonds buyback was successful, analysts commented that there was not enough interest in the government's offer from overseas investors. This necessitated constant participation on the part of Greek banks which sacrificed almost 100% of the government bonds in their portfolios in order to receive financial assistance from international institutional lenders. The banks' state will become clear next week, when financial results from operations for the first nine months of the year will be published.

Tags: Economy Markets Companies bonds debt restructuring crisis Greece
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