September 28, 2022

News Cymru

Two sides to every headline

Greek Banks Beg For Money A.K.A Greek Banks Seek Recapitalisation

Apparently Greek banks could need up to 50 billion Euros to stop them from becoming state entities.

Ever since Gordon Brown stepped in and “saved” Northern Rock it has somehow become acceptable for government to come in and give billions of pounds/euros to private companies.

I’m not talking about government support to car companies. At least there were some real assets like a factory.

But you can’t compare car manufacturer bailouts with bank bailouts, the sums of money involved are worlds apart.

For example BMW received only 150 million pounds from the UK government when it owned Rover. Northern Rock on the other hand cost the UK government a massive 80 billion pounds. Enough to build the high speed train line from St Pancreas to Folkestone 20 times over. If you can believe such a thing.

After that the game was on, banks knew they had governments exactly where they wanted them.

Today we have Greek banks threatening collapse if they do not receive billions of Euros from taxpayers in Greece and the rest of Europe.

What makes it a better idea to pay off mistakes of private business rather than to refund depositors?

At the end of the day it is the depositors who fund their own bailout.

The situation is a complete no brainer. If taxpayers have to pay to bail people out then surely taxpayers should be using their tax money to bail themselves out. Isn’t that what taxes are supposed to be for? The common good opposed to funding a plutocracy?

And going back to Greece. Why exactly is it so important to keep the 4 largest banks alive?

Because they fund the government. Sorry, isn’t that the core of the problem? The banks were too reckless with their lending?

Why should they be bailed out for the mistakes that they made and mistakes that only they profited from?

If the banks get bailed out for making foolish loans to government isn’t that a huge invitation for them to continue making bad loans to government seeing as there is no risk to them?

If you could go to the casino and keep your winnings but if you lost strangers would pay wouldn’t you be tempted to go to the casino on a regular basis?

If you have a conscience probably not but it would be tempting….

So why is the Greek government in a position where it believes it is better for Greeks to give the banks 50 billion Euro rather than simply refunding depositors?

Well the rumour is that bank deposits in Greece are around 120 billion Euros. So on the face of it, it would be more expensive to refund depositors than to simply give money to banks.

But lets look at it a bit closer.

Refunding depositors will without out a doubt recapitalize savers and give them 120 billion Euros to deposit with new banks that would fill the vacuum left by the old banks.

Sure it would cost 120 billion but that would be the end to the matter. Greece could move on and put the debts behind it.

On the other hand you have the argument of banks asking government for 50 billion.

But what do the Greek people get in return for that 50 billion?

The promise that the banks will lend 50 billion Euros in the economy. How likely is this to happen?

Given the dire nature of their balance sheets I would say very low.

Banks in Greece are making next to no loans at the moment despite allegedly holding 120 billion Euro in deposits.

Increasing the capital holdings of the largest Greek banks by 50% (the 50 billion) is not going to lead a 50% increase in lending and even if it did, a 50% increase in bank lending is not enough for the Greek economy to recover.

Personally I believe lending levels approaching 75% of pre 2008 levels would be more realistic and sustainable level.

Anything less will continue to see the Greek economy contract meaning less tax revenues and less GDP leading to continuous problems servicing government debt in the future.

The Greek government debt has been run up on 2007 levels of income and GDP.

Papademos has said is goal is to reduce this, even from todays levels, guaranteeing constant problems servicing the government debt and giving the bankers a club with which they can continue to hit the heads of Greek with for the forseeable future.

Unless of course there is a plan to do the exact opposite of what the bankers are asking for ie a plan to increase the Greek GDP.

There are so many easy and obvious solutions to the Greek governments crisis.

It is taking a real effort on behalf of the banks and their cronies like Venizelos to hold back the Greek economy as much as they are.

To clarify. The goal of the banks and their government operatives is to cripple the private sector so much that giving billion of Euros to banks looks like the preferable option.

The banks are creating the massive recession in Greece through the withholding of loans and the Papademos regime is assisting the banks by amplifying the effects of no new loans through the imposition of massive taxes.

Make no mistake. The Greek government crisis, which has been made a Greek private sector crisis, is a team effort by the Papademos/Venizelos regime and the banking cartel.

This is taking enormous effort. The Greek government is having to force through huge tax increases which absolutely no-one supports as well as increasing government regulation, despite claiming the opposite.

And all this to create an environment where the banks can claim if they get what they want they will make all the problems go away.

Of course they are correct, they do have the power to make things better, but only because they are the ones causing the problems in the first place.

Just because a gunman is offering to stop shooting you if you pay him 50 pounds does not make him correct and giving him 50 pounds may appease him but unless you arrest him your life is going to be at risk until he is dealt with.

Until Greek politicians and Greek voters show some confidence in their own country and themselves they will continue to be ruled by the same people who are running them into the ground.

My next article will highlight yet one more very simple reform which would catapult Greece out of the current crisis. And the great news is, it would save the government millions of Euros as well as bringing billions of Euros into the country, maybe not overnight but certainly within a few years.

This is the full Athens News article concerning the Greek banks

Greek bank shareholders are under pressure from Athens to contribute billions of euros to recapitalise the lenders so that the government can avoid taking them over.

Investors will find out by April 20 the details of the financial support package on offer from the Greek government, technocrat Prime Minister Lucas Papademos said on Thursday. Athens desperately wants to keep the banks in private hands.

The terms are likely to determine whether shareholders decide to take part. If they balk at the offer, the indebted Greek state could end up owning the banks.

In a worst-case scenario, 50 billion euros or a quarter of Greece’s gross domestic product (GDP), may be required to shore up the banking system. The money is needed because loan losses and a bond swap that saved Greece from bankruptcy hit its lenders – big buyers of Greek debt – particularly hard.

The government wants at least 10 percent of the capital to come from banks’ shareholders through rights issues, a senior banker close to the talks told Reuters.

“Main shareholders will need to make decisions, come up with 10 percent to keep the keys,” the banker said. “The total bill could reach 50 billion euros, including recapitalisation and resolution which is more costly.”

Whether investors are willing to pump in the cash depends on the terms and incentives on offer, although if they decide not to “follow their money” they risk having the value of their investment wiped out completely.

“The problem with the banking sector is that the landscape remains foggy, recapitalisation terms have not been spelled out,” said fund manager Theodore Krintas at Attica Bank. “Put simply, will the system be nationalised or not?”

Greece’s debt restructuring last month inflicted real losses of about 74 percent on bondholders, wiping out 22 billion of the banking system’s 23.8 billion euro Core Tier 1 ratio, according to International Monetary Fund (IMF) estimates. Banks held 45-50 billion euros of bonds.

Banks will also need to set aside more cash to cover potential future losses, increasing the size of the capital hole they need to fill to reach a core capital target of 9 percent by the end of September.

The Bank of Greece has hired investment adviser BlackRock to assess banks’ loan books for future losses and is expected to disclose the findings of that study later this month.

With the economy mired in a deep recession and unemployment at a record 21 percent, asset quality is deteriorating. Banks’ non-performing loans are certain to rise from 14.7 percent of their books at the end of September.

“The authorities will do what they can to keep the banks operating as living entities and avoid nationalisations where possible,” said analyst Alex Tsirigotis at Mediobanca Securities in London.

The state does not want to take over the banks and have to put their assets on its balance sheets, which would increase its public debt still further.

CRISIS HITS SHARES, LOANS

The scale of new capital banks need is many times their market value after their share prices imploded. Greek bank shares have shed more than 77 percent in the last year, pummeled by the threat of dilution and a bleak economic outlook.

The big four lenders – National, Eurobank , Alpha and Piraeus – together are worth just 2.7 billion euros, a fraction of the value at their prime when they expanded in the Balkans.

A capital backstop has been set up – the Hellenic Financial Stability Fund (HFSF) – to inject most of the financial support, which will most likely be in the form of bonds backed by its international lenders. The fund will do this by buying common shares with restricted voting rights and by buying bonds, known as CoCos, issued by the banks, which would convert into shares if capital falls below certain levels.

Banks want a 3.5 percent annual interest payment and a long maturity of at least 10 years for the CoCos. The HFSF, which is funded by the euro zone and IMF, aims to eventually re-sell the shares to private-sector investors.

The more contingent convertible debt (CoCos) is issued, the smaller the rights issue will need to be, meaning shareholders will be asked to stump up less cash.

But the devil is in the detail – at what discount will the new shares be issued and will investors and the HFSF be offered new stock at the same price?

“If the price for the fund (HFSF) is lower compared to that for investors it would discourage their (shareholder) participation in the recapitalisation,” the Greek banks association said in a memorandum obtained by Reuters. (Reuters)

Get the latest updates in your inbox

I