Ackermann Says Banks to Help on Greek Rescue to Avoid ‘Meltdown’
Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said he expects financial companies will contribute to a Greek rescue to avoid a “meltdown,” as banking and government officials sought agreement on a debt rollover.
“If Greece goes into default, then we would have a disruption in Europe that could more quickly impact other countries in a way that goes far beyond what Lehman Brothers meant for us,” Ackermann said at a conference in Berlin today. Speaking to Chancellor Angela Merkel, he said “we’ll offer our hand in a solution, but not because we’re doing it gladly, but actually to enable policymakers to do something so that we -- I’ll say it frankly -- so that we don’t have a meltdown.”
Commerzbank CEO Martin Blessing, speaking at the same conference, said German financial institutions have reached a draft agreement on participation in a Greek rescue, adding that there are still “a few hitches.” The Frankfurt-based lender is willing to contribute to a Greek aid package to win time for the country, help it grow and stay competitive and to prevent a “chain-reaction,” he said.
The remarks by the CEOs of Germany’s two biggest banks coincided with Greece’s parliament approving the first part of an austerity plan aimed at meeting European Union aid requirements and staving off default for the debt-laden nation. German and French lenders are the biggest foreign holders of Greek debt and their participation is key to the EU goal of getting banks to roll over at least 30 billion euros ($43 billion) of bonds.
Talks in Berlin
German banking and insurance representatives and government finance officials, working off a French proposal, held talks in Berlin today to discuss their Greece holdings and how much debt they’re willing to roll over, two people familiar with the matter said earlier today. They 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.
Ackermann, who is also chairman of the Institute of International Finance, which represents more than 400 financial companies, said they are “working around the clock” with special teams, rating agencies and bodies overseeing credit-default swaps to test whether any agreement would trigger a credit event. He warned that any agreement is “highly complex” and could forcing investors to write down their Greek holdings by an estimated 30 percent to 45 percent if done incorrectly.
German Finance Minister Wolfgang 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 package failed to resolve the debt crisis. 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.
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.
To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at email@example.com