Ger­man banks could sur­vive losses

Fitch warns against broader im­pact on sys­tem; Rehn says EU eval­u­at­ing way to ‘re­pro­file’ debt

Kathimerini English - - Business & Finance -

A top rat­ing agency says Ger­many’s banks could sur­vive losses on the Greek debt they hold if the coun­try were to re­struc­ture its debts and pay less than the full amount owed, boost­ing ar­gu­ments in sup­port of a de­fault by Athens.

But the agency is warn­ing that a Greek re­struc­tur­ing could spread rip­ples through­out the bank­ing sys­tem as a whole, mak­ing it harder to bor­row at a time when many banks are still re­cov­er­ing from the fi­nan­cial cri­sis.

Fitch Rat­ings says

it does not fore­see any rat­ings down­grade for Ger­man banks based on their ex­po­sure to Greece.

Even a se­vere loss of 50 per­cent on bond hold­ings would not de­plete bank fi­nan­cial buf­fers to the ex­tent that they would lose their cur­rent rat­ings.

Fears about what a Greek de­fault or re­struc­tur­ing would do to the bank­ing sys­tem have been a driv­ing force be­hind EU ef­forts to prop Greece up with bailout loans.

Mean­while, Pa­cific In­vest­ment Man­age­ment Co’s head of Euro- pean credit port­fo­lio man­age­ment said Greece may man­age to ex­tend the ma­tu­ri­ties of its bonds with­out caus­ing credit de­fault swaps to pay out.

“Be­fore you get to a re­ally bad out­come, I think you’re go­ing to get some kind of vol­un­tary process in place first and that means it doesn’t nec­es­sar­ily trig­ger CDS, it doesn’t nec­es­sar­ily get peo­ple into trou­ble straight away,” PIMCO’s Luke Spa­jic told Bloomberg.

“There will be this kind of soft, co­er­cive sug­ges­tion that the debt should be ex­tended.”

Greek gov­ern­ment bond yields and five-year credit de­fault swaps have surged to record lev­els since Lux­em­bourg Prime Min­is­ter JeanClaude Juncker, who also leads the group of euro-area fi­nance min­is­ters, said ear­lier this month he wouldn’t rule out a “re­pro­fil­ing” of Greek debt.

Swaps pay the buyer face value in ex­change for the un­der­ly­ing se­cu­ri­ties or the cash equiv­a­lent should a bor­rower fail to ad­here to its debt agree­ments.

Yes­ter­day, Euro­pean Eco­nomic Com­mis­sioner Olli Rehn said that the Euro­pean Com­mis­sion is eval­u­at­ing a mech­a­nism to “re­pro­file” Greek debt on a vol­un­tary ba­sis, with­out re­duc­ing the debt’s cap­i­tal.

The mech­a­nism must be vol­un­tary to avoid scar­ing lend­ing na­tions, he said.

The yield on 10-year Greek gov­ern­ment bonds was 16.8 per­cent yes­ter­day, while the spread over sim­i­lar du­ra­tion Ger­man bunds was 1,376 ba­sis points.

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