Daily Management Review

$35 Billion Bank Bond Swap said to be Entailed by Greek Debt Relief Plan


11/27/2016




$35 Billion Bank Bond Swap said to be Entailed by Greek Debt Relief Plan
Under a euro-area plan to shield Athens from future interest rate increases, Greece’s battered banks are being asked to swap about 33 billion ($35 billion) euros in floating-rate bonds for 30-year, fixed-rate securities, three people with knowledge of the matter were quoted in the media.
 
According to the people, who asked not to be named because they weren’t authorized to speak publicly about the matter, the swap is part of a package of debt-relief proposals for Greece to be presented at a Dec. 5 meeting of euro-area finance ministers. European Financial Stability Facility, the region’s crisis-fighting fund, had issued the notes to re-capitalize Greek lenders in 2013.
 
The sources said that while the fixed-rate notes will expire in 2047, the current EFSF holdings of Greek banks fall due between 2034 and 2046. Greece’s four systemically important lenders could be left with securities that are more difficult to trade due ot the measure even though it will reduce Greece’s interest rate risk. The technical aspects of the operation are still being hashed out.
 
“There are discussions going on as to proposals which will improve the sustainability of the Greek debt Part of this proposal is a change in the EFSF bonds for something else, some form of fixed-rate debt, which would improve the predictability of the sustainability of the Greek debt profile,” Piraeus Bank Chairman George Handjinicolaou said in an interview.
 
To improve Greece’s ability to carry its debt load without adding to the burden on European taxpayers, Euro-area finance ministers asked the crisis fund in May to propose measures. Reducing interest rate risk and smoothing out the repayment profile on bailout loans are the steps included in the measures. An ESM spokesman said that in addition to those of the fund that later replaced it, the European Stability Mechanism, officials are looking at all Greek-related EFSF assets. The spokesman declined to comment further.
 
Greek bankers familiar with the process said that the country’s lenders may wind up bearing the costs of the swap. Amounting to more than 80 million euros is the dollar duration or DV01 -- the dollar variation in a bond’s value per unit change in the yield. Traded daily are just over one billion euros of swaps on the 30-year tenor, LCH Clearnet SA data shows.
 
The perception that the plan in its current form would mean losses for banks was denied by the chief executive officer of National Bank of Greece SA, Leonidas Fragkiadakis.
 
“By the initial drafts that I have seen, this seems to be a very well thought-out plan that basically does not lead to any additional risk assumptions by the Greek banks. However there are details in this plan that still need to be addressed, and at this point discussions are still ongoing,” Fragkiadakis told Bloomberg TV.
 
Two other Greek lenders, Eurobank Ergasias SA and Alpha Bank AE, declined to comment on the negotiations or the potential costs of the proposed restructuring. A central bank representative also declined to comment.
 
(Source:www.bloomberg.com) 






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