Senior bank bonds fall on bail-in comments
Senior bonds of Greek banks tumbled yesterday after euro-area finance ministers protected depositors from any losses in the nation’s 86-billion-euro bailout. While Greece’s third bailout will spare depositors in any restructuring of the nation’s financial system, senior bank bondholders may not be so lucky, according to comments from Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem. The bondholders will be in line for losses if Greek lenders tap into any of the financial stability funds set aside in the new bailout. “Bondholders were overly optimistic because bail-in of senior bonds was not explicitly mentioned before,” said Robert Montague, a senior analyst at ECM Asset Management in London. “Today they were brought back down to earth with a bump.” Under the bailout terms, as much as 25 billion euros will be made available in a fund to recapitalize the Greek banks, including 10 billion euros as a first installment. Greek stocks rose and government bond yields dropped on the deal, though senior unsecured bank bonds fell. Eurobank Ergasias SA’s senior unsecured 4.25 percent June 2018 bonds dropped 19 cents to 35 cents on the euro at 1.35 p.m. in London. Piraeus Bank SA’s senior unsecured 5 percent March 2017 bonds plunged 15 cents to 37 cents, while Alpha Bank SA’s senior unsecured 3.375 percent notes due June 2017 dropped 13 cents to 55 cents, according to data compiled by Bloomberg. “The bail-in instrument will apply for senior bondholders, whereas the bail-in of depositors is explicitly excluded,” Dijsselbloem said at a press conference in Brussels on Friday. Greece’s euro-area creditors made adoption of the European Union’s Bank Resolution and Recovery Directive, or BRRD, a precondition of the bailout. The directive, which makes it easier to impose losses on senior creditors, should rank senior unsecured bondholders and depositors equally, said
Germany’s Bundesbank sounded upbeat on Greece yesterday, arguing the economy would gradually improve, benefiting from the bailout, tourism and investments from European structural funds. Normalized bank operations will also help the Greek economy while the previous wage and fiscal adjustments should also make an impact.