SocGen Joins Generali in Greece’s Debt Swap

Wednesday, 07 Mar 2012 07:05 AM

 

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Societe Generale SA, France’s second-biggest bank, Assicurazioni Generali SpA and UniCredit SpA joined firms saying they would participate in Greece’s debt swap as the country threatened to compel holdouts to take part.

Greece’s six largest banks also plan to accept the offer, the Finance Ministry said late yesterday. Those lenders held about 42 billion euros ($55 billion) of bonds eligible for the swap at the end of September, company reports show, making them crucial to the exchange. Greek pension funds with about 17 billion euros of debt will also join, Finance Minister Evangelos Venizelos said on Real FM Radio today.

The goal of the swap, which runs through tomorrow, is to reduce the 206 billion euros ($270 billion) of privately held Greek debt by 53.5 percent, helping avert a disorderly default that could roil markets and fuel contagion. The Greek government said it will use collective action clauses to force holders of Greek-law bonds to accept the swap if necessary.

Not Joining Swap

Patrick Armstrong, managing partner at Armstrong Investment Managers in London, said he won’t voluntarily join in the swap because of the “minuscule” chance his bond maturing March 20 will be redeemed at par. Failing that, “‘I do fully expect to be part of the collective action clause,” he said in a Bloomberg Television interview with Mark Barton today.

Greek pension funds with an additional 6 billion euros of bonds have to decide whether to join, Venizelos said.

Trieste-based Generali, Italy’s largest insurer, held Greek bonds with a nominal value of about 2.95 billion euros at the end of September, while UniCredit of Milan had 540 million euros of Greek bonds on that date, company reports show. Societe Generale had 1.06 billion euros of Greek sovereign bonds as of Dec. 31. Spokeswomen for the companies confirmed that they plan to participate in the swap.

European officials are pressing investors to swallow net present value losses of more than 70 percent to avert the even greater hit that would result from an uncontrolled default. A second rescue package, a 130 billion-euro bailout, depends on the exchange’s outcome.

No More Funds

If the swap fails, “the official sector will not finance Greece’s economic program and Greece will need to restructure its debt” on different terms from those set out in the current proposal, the Greek Finance Ministry said in a statement yesterday. Petros Christodoulou, the director general of the Public Debt Management Agency, outlined the country’s debt swap at a meeting in Frankfurt, according to the statement.

Greece expects bondholders to accept the offer and is ready to force them to participate if necessary, Venizelos said in a Bloomberg Television interview in Athens this week. Compelling holdouts to take part will likely trigger insurance contracts on the debt known as credit default swaps, analysts said.

If Greece forces bondholders to join, there “is likely be fallout in the peripheral countries, including Spain and Italy,” Marc Chandler, the head of global currency strategy at Brown Brothers Harriman in New York, said in a note. There may also be negative repercussions for financial shares, he said.

The Bloomberg Europe Banks and Financial Services Index advanced 0.6 percent by 11:05 a.m. Paris time after posting its biggest decline in four months yesterday.

Steering Committee

Three of the largest Greek banks -- National Bank of Greece SA, Alpha Bank SA and EFG Eurobank Ergasias -- had already signalled they would participate in the debt swap. Now Piraeus Bank SA, Agricultural Bank of Greece and TT Hellenic Postbank SA have signed on, according to the Finance Ministry.

Twelve members of the creditors’ steering committee that negotiated the debt swap with Greece will join in the exchange, according to a March 5 statement from the International Institute of Finance, which represents more than 450 financial- services companies globally. Charles Dallara, managing director of the Washington, D.C.-based IIF, led negotiations for private creditors in the debt-swap discussions.

Leaving aside the three Greek banks on the committee, the remaining nine firms that signed on, which include BNP Paribas SA, Deutsche Bank AG and Commerzbank, hold Greek government bonds with a face value of at least 14 billion euros, according to data compiled by Bloomberg from the companies and their reports.

Allianz, Axa

Allianz SE, Axa SA, CNP Assurances SA, Greylock Capital Management, ING Bank and Intesa Sanpaolo SpA are the other members of the creditors’ steering committee that plan to accept the swap, according to the statement from the IIF.

Rabobank Groep plans to participate, Chief Financial Officer Bert Bruggink said by e-mail. The Utrecht, Netherlands- based company had Greek bonds with a market value of 49 million euros after writing them down by 72 percent. Banco BPI SA also plans to take part, an official at Portugal’s fifth-biggest bank said in a telephone interview.


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