Athens finds itself at the heart of the European banking sector today, with representatives of major European banks and Charles Dalaras of IIF having the first substantive meeting on the conditions of the PSI implementation for the haircut of Greek government bonds by 50%.
The bankers, who after many negotiations were able to reach an agreement in the summer, which was never applied though, for a 21% haircut on Greek bonds, are extremely reluctant to voluntarily accept such a large decrease in their portfolio. Thus, they will try to achieve significant return towards their participation, such as high interest rates of about 7%-8%on new bonds.
The biggest thorn for Greek banks is finding the funds to cover the losses they suffer from the haircut in order to avoid nationalization, which seems inevitable at this point. According to what EBA announced and confirmed the previous Friday, the Greek banks will meet their capital needs through the Financial Stability Fund that will be reinforced for this purpose with the amount of 30 billion euros.
PSI’s success will be judged by the participation, since in order to have a positive effect on reducing the debt, the percentage of bank participation will have to be at least 90% in order to reduce the debt for the state to about 65-70 billion euros. The new bonds will be based on English rather than Greek law, which can create additional obligations for the Greek government, i.e. enabling bondholders to demand collaterals in a potential restructure of the debt.
It is reminded that the Greek government consultants for the PSI and haircut procedures, are Lazard and the Cleary Gottlieb Steen and Hamilton law firm, based in New York. The scenarios the law firm has developed include a possible return of Greece to the drachma.
Unlike the american Cleary Gottlieb Steen and Hamilton, the European BNP Paribas, HSBC and Deutsche bank which happen to hold Greek bonds in their portfolios and were hired as consultants for the July 21 PSI, were "fired" by Venizelos, the last day of the previous government by Papandreou.