Tags: Europe | Banks | Roll | Over | Greek | Debt

Europe Banks Volunteer to Roll Over Greek Debt

Thursday, 23 Jun 2011 12:30 AM

 

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Franco-Belgian banking group Dexia is prepared to voluntarily roll over its Greek debt, a financial source said on Thursday, adding to the list of banks prepared in principle to take part in a second Greek rescue.

The euro zone wants Greece's private bondholders to roll over as much as 30 billion euros ($42.68 billion) of sovereign debt as part of a new package of emergency support for Athens that financial sources say could total 120 billion euros. No details of how this scheme would work have yet been finalized.

The source told Reuters that Dexia , which has said it has 5.4 billion euros ($7.75 billion) exposure to Greek bonds, had been involved in talks with the Belgian central bank over its possible involvement in a rollover and was ready to take part, although only 4.2 billions euros of its holdings would be involved.

The Belgian central bank was not immediately available for comment and Dexia offered no comment.

Sources told Reuters on Wednesday that central banks in Germany, France and the Netherlands had started discussions with financial institutions.

An Italian government source said Italian banks were willing to roll over their Greek government bonds when they reach maturity as part of a voluntary operation along the lines of the 2009 Vienna Initiative, whereby banks agreed to maintain their exposure to central and eastern Europe in the aftermath of the financial crisis.

And Spain's El Pais newspaper reported on Thursday that Economy Minister Elena Salgado met with Spanish bankers on Wednesday to discuss their potential participation, although Spain's private sector is not a major creditor to Greece.

The biggest are French and German banks.

Belgian insurer Ageas and bank KBC are also involved in discussions with the central bank. A spokeswoman for Ageas said that the talks were at a very early stage and that she could make not further comments.

Ageas had an exposure of 1.83 billion euros to Greek government debt at the end of the first quarter, figures from the company show. A spokeswoman for KBC, which held 600 million euros worth of Greek government debt at the end of the first quarter, said that the group had been contacted by the central bank and that it would hold talks either on Thursday or Friday.

Details, Details

Belgian newspaper De Tijd said the talks with the three institutions involved rolling over exposure to Greek debt for five years at a coupon equivalent to the lending rate of the bloc's emergency fund, the European Financial Stability Facility.

The EFSF's lending rate to distressed sovereigns is about 5.8 percent, although that rate was cut by one percentage point in March for Greece.

However, any rollovers have to be voluntary, otherwise they risk being classified by credit ratings agencies as a default, or at least a "credit event", which could have widespread repercussions for European and global markets — something EU policymakers say they are determined to avoid.

Rating agency Fitch has said even a voluntary rollover will be classified as a default as far as it is concerned.

On Monday, German banking association BdB said additional incentives would be needed to convince private sector holders of Greek debt to participate in a new bailout.

However, German public-sector banking association VOEB, which represents regional Landesbanken, said last week the decision to involve private bondholders on a voluntary basis was "the right way".

French bank Credit Agricole , among the most exposed in Europe to Greece's debt-stricken economy, has said it would support an extension of Greek sovereign debt maturities.

Private investors are estimated to hold some two-thirds of Greece's approximately 270 billion euros of sovereign bonds. Roughly 90 billion euros of that is held by insurance companies, pension funds and investors such as hedge funds.

Greece is already receiving payments from a 110 billion euro package agreed in May last year. The next installment of those loans — 12 billion euros — is due to be paid in July, as long as Greece supports an EU/IMF austerity plan. Failure to back the plan could lead to Athens defaulting on its debts.

© 2014 Thomson/Reuters. All rights reserved.

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