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The procedure for replacing the Greek bonds (PSI) enters the most critical phase with the submission of binding bids, after the expiration of yesterday's deadline for expressing interest by the institutional investors.

The Ministry of Finance and the Organization for Management of the national debt described the response of foreigners yesterday as "satisfactory", without however disclosing any details about the reply letters they have received. They also added that the procedure will continue in the coming days.

Information indicates that the participation of investors varies between 70% -75% of the value of the bonds, against 90% which is the goal and over the next nearly 25 days they will strive for this percentage be increased. Within this framework, workshops will continue to inform institutional investors in Europe and Asia in order to convince them to participate in the procedure.

Submission of binding bids based on the existing program will be implemented in early October and until then concerns will reach their climax, as in case the procedure fails, there will be more delays, while the lumbering eurozone co-ordinates a new plan to deal with the national debt.

In any case, the Ministry of Finance and the Organization for government debt management begin to explore also the possibilities for a lower than 90 percent participation by investors in the procedure. Despite the fact that originally it was stressed that if participation does not reach 90% it makes no sense to launch the replacement of bonds, this position is reviewed on the basis of data resulting from the claimed interest so far, but primarily from the submission of binding offers.

It is recalled that the replacement provides for the inclusion in the program for voluntary return, 90% of the bonds which expire until 2020. The nominal value of these bonds amounts to 148.7 billion euros, and 90%, which is the target for the participation, reach 133.8 billion.

If the information on the interest shown, covering 70% -75% of the bonds is true, the value of the specific bonds will range between 105 to 110 billion euros and lays behind the goal by nearly 25-30 billion.

The banks

The question abut the participation in the replacement of Greek bonds, which Atebank and Savings Bank hold in their portfolios remains hanging, It is a question which is expected to be resolved over the next week. On the one hand Atebank is in the process of restructuring and on the other hand the Savings Bank is included in the privatization program and their participation is subject to negotiation of the Ministry of Finance with the supervisory Troika.

The losses

Losses ranging from 21.9 billion euros to 43.9 billion euros, will suffer the Greek banks in the event that the "pruning" of the Greek bonds by 40% -80%is decided that, says a report titled «Banks as bystanders at the sovereign stage of the crisis »" Goldman Sachs ".

In this analysis, revealing the effects of exposure of European banks to the risk of the bonds from the periphery of the eurozone it has been calculated that 38 banking groups will require new capital amounting to 30 to 92 billion depending on the "pruning", which will be imposed on European bonds so as to keep the index of capital adequacy at levels 5% -7%.

The scenarios

The report of the agency includes two hypothetical scenarios for "pruning" of the bonds in the European south. In the first scenario it is indicated that there will be "pruning" of 60% for the Greek bonds and 40% for the bonds of Portugal and Ireland.

In this case, about 18 financial institutions in Europe will reach the target level of capital adequacy index of 5%, while capital losses will reach 29.5 billion euros.

In the second scenario members of "Goldman Sachs" believe that there will be a "pruning" of 60% for Greek bonds, 40% for bonds from Portugal and Ireland, but there will also be a "pruning" of 10% of the Italian and Spanish bonds.

In this case, about 27 financial institutions in Europe will not reach the minimum target level of the capital adequacy index of 5%, while capital losses will reach 29.8 billion euros.

According to "Goldman Sachs", European banks generally have sufficient capital to cope with possible deterioration of the credit markets.

It is noted that based on a dramatic scenario which would require a "pruning" of 80% of the Greek bonds, 60% of the Portuguese and Irish bonds, and 20% of the Italian and Spanish ones, the total losses could reach 125 billion euro.

Reduction of the targets

Based on new estimates of the losses "Goldman Sachs" proceeded to a reduction of the price-targets of four Greek banks.

In particular, the price-target for "Piraeus" Bank was reduced from 1.05 to 0.7 euro, for the National Bank of Greece from 5.25 to 4 euro, for the Bank of Cyprus from 1.9 to 1.5 euros, for ATE Bank from 1.1 to 0.65 euros, for Marfin Bank from 0.6 to 0.45 euros and for the Savings Bank from 2.5 to 1.5 euros.

"The procedure is progressing positively"

Commentators from foreign news agencies believe the percentage of participation of private investors in the exchange program of the Greek bonds to be satisfactory, which was created so as to allow Greece to avoid suspension of payments, and gain more time to reduce the deficit and the national debt.

Banks and insurance groups from 57 countries around the world had until yesterday to announce their participation in the exchange program, which is part of the second package of economic aid for Greece. Senior bank officials who wished to remain anonymous, believe that the percentage participation of the private sector amounted to 70%, which is lower than the initial target of 90% participation.

"The progress is satisfactory, the procedure is progressing positively", said a senior official in the French news agency, at the time of the closing of the first date for expressions of interest, without, however, disclosing any further details. The program for the exchange of debt is an important part of the new program of support to Greece amounting to 159 billion euro agreed upon during the summit from July 21^st.

Greek senior official added that the September 9^th deadline applies to banks and funds from the eurozone, and has been extended until early October for the international credit institutions. "Participation is satisfactory among banks from the eurozone, but the procedure continues. We will have a clearer picture at the beginning of October", he said.

From the Austrian banks and insurance groups in the exchange program of the Greek bonds interest in participation have declared Bank Austria, Erste Group, KommunalKredit, UNIQA, Vienna Insurance and Volksbanken.

When the leaders of the eurozone announced at the summit that the new package of economic aid for Greece includes private sector participation, they explained that they had in mind an emergency measure which will not be repeated.