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Monday, December 10, 2012

The Greek bond buyback: Greek banks are putting up a fight (as we predicted)

As we predicted two weeks ago the Greek bond buyback is turning out to be much trickier than almost everyone else expected, and for exactly the reason we suggested – the Greek banks.

Despite positive declarations throughout last week that the Greek bond buyback would reach its target of €30bn bonds submitted by the Friday deadline, the Greek government has announced that the deadline has now been moved to 12pm Tuesday 11 December.

Throughout the buyback process the Greek banks have made it clear that they want to keep their participation to a minimum and are not keen on the buyback plan generally. The reasons for why have been discussed here and here (potential losses and hit to liquidity). Needless to say, the Greek government has exerted significant political pressure to ensure that the Greek banks do participate fully.

Despite this, Kathimerini reports that the Greek government decided to extend the deal after hedge funds submitted €16bn in bonds (much of which they will make a profit on) while Greek banks submitted around €10bn. This was short of €16bn which the banks were expected to submit, and which they are likely to be pushed into submitting by tomorrow.

As FT Alphaville highlights, this did not go down too well and the press release on the extension contains a (very thinly veiled) threat that those bond holders who do not take part may not end up getting paid back at all. Stelios Papadopoulos, the head of the Public Debt Management Agency, is quoted (in the actual press release) as saying:
“Investors should bear in mind that even if Greece accepts all bonds tendered in the Invitation, it will continue to engage with its official sector creditors in considering further steps to put its debt on a sustainable path. Future measures may not involve an opportunity to exit investments in Designated Securities at the levels offered for this buy back.” 
The buyback still looks likely to be completed, but all of this highlights just how weak Greek banks are - the last thing the Greek economy needs is even weaker domestic banks (and therefore even less lending to the real economy).

1 comment:

christina speight said...

The stately quadrille does on and on and on. Nobody in the EU - except perhaps Berlusconi ? _ is prepared to admit that they are crucifying and wrecking Europe in pursuit of an unattainable fantasy. . The music will stop one day - when Europe is wrecked irretrievably. Forget Fiscal Union - the euro has become an austerity union.

The continued survival of the euro is not the answer - it is the problem.

Greece could have left the Euro AND been bailed out for half the money already spent to wreck the country. The contagion would not have spread as far then. If the Lartun countries used their voting power they could force Germany out of the euro at which point the new Mark would appreciate against any remaining and the residual euro would decline. At a stroke the imbalance in Europe would be corrected and normal market forces would reassert themselves and recovery could start.

Will this happen NO of course it won't. The EU ;leaders are too arrogant ever to admit they were wrong and the EU is so undemocratic that democratic pressures are subdued and do not operate. The people sit (for now) and suffer.

It's obscene