German Banks, Finance Ministry Seek Greece Agreement
By Aaron Kirchfeld - Jun 29, 2011 3:24 PM GMT+0200 Wed Jun 29 13:24:17 GMT 2011
German banking and insurance executives and government finance officials held talks in Berlin to hammer out a preliminary agreement on a Greek debt rollover before a meeting with Finance Minister Wolfgang Schaeuble tomorrow, two people familiar with the matter said.
The firms and government representatives, working off a French proposal, discussed potential sticking points including the maturity of the Greek bonds, whether investors would face writedowns on their current holdings, and how rating companies would view a rollover, said the people, who declined to be identified because the talks are private.
Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said at a conference in Berlin today that he expects the financial industry to contribute to a rescue to help policymakers avoid a “meltdown.” Ackermann, who spoke beside Chancellor Angela Merkel, warned that a Greek default and potential contagion could be worse than the collapse of Lehman Brothers Holdings Inc. He’ll attend the meeting with Schaeuble tomorrow.
Schaeuble will hold talks with the heads of German banks and insurers tomorrow, his deputy, Joerg Asmussen, said yesterday. The meetings are part of Europe-wide efforts to get creditors to share the cost of a second Greek bailout and prevent the euro-region’s first default, a year after a 110 billion-euro ($157 billion) package failed to resolve the debt crisis.
Up to Germans
German and French lenders are the biggest foreign holders of Greek debt and their participation is key to the European Union goal of getting banks to roll over at least 30 billion euros of bonds. Schaeuble sees a French proposal to roll over Greek debt as a “good basis” for talks, Asmussen said yesterday.
Under the French plan, private investors would receive new Greek 30-year bonds worth 70 percent of their original holdings, with the remaining 30 percent paid in cash on maturity. Greece would use 50 percent of the original amount to pay down its debt, with 20 percent invested in zero-coupon bonds through a special purpose vehicle that will be used as collateral to insure the banks get repaid.
Banks that roll over their debt under the French plan would receive 30-year bonds with a coupon of about 5.5 percent, which could be increased by as much as 2.5 percentage points based on the pace of Greek economic growth, the people said. The SPV will invest in AAA-rated securities that will be held as collateral to protect the banks against a Greek default.
French Accord
In a second option, investors would reinvest at least 90 percent of their redemptions into five-year Greek government debt with a coupon of 5.5 percent, according to the proposal.
The plan depends upon credit-rating firms not cutting their grade on Greece and existing or newly issued government securities to default, according to the draft. A Paris-based spokeswoman at the French Banking Federation declined to comment on the three-page report when contacted by Bloomberg.
The French plan to roll over Greek sovereign debt has the backing of most of France’s banks and insurers, and it’s now up to investors in Germany and elsewhere in Europe to agree to a strategy, according to two people familiar with the matter.
European banks hold 17.2 billion euros of Greek bonds maturing by the end of 2013, Citigroup Inc. estimated in a June 23 report. Greek banks hold almost 22 billion euros of bonds coming due in that period, and the country’s central bank owned 5.1 billion euros of debt likely eligible for the rollover, Citigroup estimated.
There is “growing interest” among international banks in resolving the Greek debt crisis via measures that include debt buybacks, said Charles Dallara, managing director of the Institute of International Finance.
“Debt buybacks can be a real component of a more comprehensive approach here,” Dallara told reporters in Istanbul today. The amount of buybacks “has to be significant enough to affect the thinking of market analysts.”
(bloomberg)
