Greek banks did much better than expected in the latest ECB stress test (undoubtedly stress-free). The ECB's adverse scenario shows Greek banks only underfunded to the tune of €14 Billion. A scramble is now underway to raise that amount and Stabilize the Greek Banking Sector. 

Greece’s four big banks will this week finalise recapitalisation plans to raise €14bn the European Central Bank says they require, in the latest move to stabilise the Greek economy.

After a weekend in which the ECB announced the result of stress tests for the banks and the Greek parliament passed legislation paving the way for the state to inject more funds into the sector, a senior Greek banker said the banks’ needs were manageable, but stressed that time was short.

Much attention has focused on whether the recapitalisation of the four banks — Piraeus Bank, National Bank of Greece, Alpha Bank and Eurobank — will dilute international investors’ equity stakes.

“So far, so good . . . the outcome of the stress tests could have been much worse,” the banker said. He was referring to the ECB’s finding that the banks would be short of €14.4bn of capital under the so-called “adverse scenario”, where lenders must be able to withstand a worsening of economic and financial conditions. “But there’s still a lot of work to be done in a very short time.”

The banks have until Friday to present their recapitalisation plans for approval by the European Central Bank’s single supervisory mechanism.

One person with knowledge of the discussions added that the government would steer clear of heavily diluting international investors’ equity.

“We’re looking at a 25 per cent direct equity stake for the Greek state and 75 per cent in the form of cocos [hybrid bonds that convert into equity only if a bank’s capital falls below a certain level],” this person said.

In addition, the senior banker also suggested that it would be counter-productive to “bail-in” senior bondholders to any recapitalisation by imposing losses on them, even though such a course of action might be possible under the new framework legislation.

“It is clear that if adopted [a bail-in] would become a legal minefield that could affect the sector’s overall stability,” the banker said.

Stress-Free Results

Heaven forbid bondholders take any losses. And of course the €14 Billion stress-free result was better than anyone expected: nudge-nudge, wink-wink.

As we all know, bondholders generally don't lose (except to bail out public unions and public pension plans as in GM, Detroit, and various California cities).

This material is based upon information that Sitka Pacific Capital Management considers reliable and endeavors to keep current, Sitka Pacific Capital Management does not assure that this material is accurate, current or complete, and it should not be relied upon as such.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD trades sideways below 1.0450 amid quiet markets

EUR/USD trades sideways below 1.0450 amid quiet markets

EUR/USD defends gains below 1.0450 in European trading on Monday. Thin trading heading into the Xmas holiday and a modest US Dollar rebound leaves the pair in a familair range. Meanwhile, ECB President Lagarde's comments fail to impress the Euro. 

EUR/USD News
GBP/USD stays defensive below 1.2600 after UK Q3 GDP revision

GBP/USD stays defensive below 1.2600 after UK Q3 GDP revision

GBP/USD trades on the defensive below 1.2600 in the European session on Monday. The pair holds lower ground following the downward revision to the third-quarter UK GDP data, which weighs negatively on the Pound Sterling amid a broad US Dollar uptick. 

GBP/USD News
Gold price sticks to modest gains; upside seems limited amid USD dip-buying

Gold price sticks to modest gains; upside seems limited amid USD dip-buying

Gold price attracts some follow-through buying at the start of a new week and looks to build on its recovery from a one-month low touched last Thursday. Geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East, along with trade war fears, turn out to be key factors benefiting the safe-haven precious metal. 

Gold News
Bitcoin fails to recover as Metaplanet buys the dip

Bitcoin fails to recover as Metaplanet buys the dip

Bitcoin hovers around $95,000 on Monday after losing the progress made during Friday’s relief rally. The largest cryptocurrency hit a new all-time high at $108,353 on Tuesday but this was followed by a steep correction after the US Fed signaled fewer interest-rate cuts than previously anticipated for 2025. 

Read more
Bank of England stays on hold, but a dovish front is building

Bank of England stays on hold, but a dovish front is building

Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Majors

Cryptocurrencies

Signatures