Greece’s second and third-biggest banks posted losses in the first nine months of the year as they delayed writing down the value of Greek government bond holdings in line with an Oct. 26 debt swap agreement.
Alpha Bank SA, Greece’s third-largest lender, posted a net loss of 566.7 million euros ($757.2 million) compared with a year-earlier profit of 75.5 million euros, the Athens-based bank said in an e-mailed statement today. EFG Eurobank Ergasias SA, the second biggest bank, reported a loss of 575 million euros compared with a 60 million-euro profit a year earlier.
Greece’s banks wrote down losses on their holdings of Greek government bonds at the end of the last quarter after a July 21 debt swap agreement that involved them reducing the value of their bond holdings by 21 percent. As the country’s debt crisis subsequently worsened, the July 21 agreement was replaced with the October agreement, involving private sector creditors taking bigger losses. The details of that agreement are still being negotiated.
“The framework for negotiations have been set in the heads of state meeting, but the negotiations are currently starting, so from our perspective it would have been very premature to try and put that in our numbers,” Alpha Bank’s management said in a telephone interview today. “We felt it would have been more prudent to wait for the final terms before we put them in our numbers, presumably in the full year results.”
Alpha and Eurobank said in August they would team up to ride out a deepening recession and the country’s sovereign debt crisis. European Union and Greek officials, including central bank chief George Provopoulos, have pressed the country’s lenders to form stronger groups that can survive a crisis that has depleted capital as bond prices slump, loan-losses mount and banks lose deposits.
The banks expect the merger to be completed next month.
Alpha said it had impairment losses of 608.1 million euros on bonds in the period arising from the July 21 agreement, with bond writedowns in the third quarter of 69.4 million euros. The bank posted a loss of 41.9 million euros in the third quarter and said it held 3 billion euros of Greek government bonds that would be subject to further write downs from the Oct. 26 agreement.
The government plans to pay lenders 50 cents for each euro the government borrowed under the terms of the swap. Its 4 percent notes due in August 2013 now trade at about 31 cents. Fitch Ratings says the agreement with creditors would amount to a “default event” if implemented, while the International Swaps and Derivatives Association says it won’t trigger credit-default swaps.
Concerns the country may be forced out of the euro currency, in the wake of former Prime Minister George Papandreou’s plan to hold a referendum on the second bailout, deepened the deposit drain which only stabilized when Prime Minister Lucas Papademos was appointed on Nov. 11, Alpha Bank executives said in a phone interview.
“It is a very difficult situation we find ourselves,” said Michael Massourakis, the chief economist at Alpha. “The euro zone is under severe stress, we are seeing degenerative phenomena, but at the same time we are seeing market forces pushing European policy makers into forging a new type of construction in the sense of going further into fiscal integration.”
Greece has funds earmarked for banks from its 130 billion-euro second bailout package. Recourse to the 30 billion-euro Hellenic Financial Stability Fund would be in exchange for common shares, a move that could wipe out existing shareholders.