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The adventures of Baron von Munchausen as a Greek banker

04 July 2010 / 10:07:36  GRReporter
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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.

Tags: crisis Greek banks mergers companies
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