Tags: Merkel | Greek | Investor | Losses

Merkel Signals More Greek Investor Losses, Bank Capital Boost

Wednesday, 05 October 2011 11:59 AM

Chancellor Angela Merkel, the biggest contributor to European bailout funds, said investors may have to take deeper losses as part of a Greek rescue as she signaled Germany’s readiness to join efforts to recapitalize banks.

Merkel held talks in Brussels today with European Commission President Jose Barroso as financial shares rose amid speculation euro-area policy makers were working on plans to boost bank capital to contain the region’s debt crisis.

“Time is running out” to establish if recapitalization is necessary, Merkel told reporters. She also said that “if needed, there will be an adjustment” in investors’ share of a 159 billion-euro ($212 billion) second aid package for Greece, pending a report by international auditors on Greece’s finances due before a meeting of European finance ministers next month.

Signals that European politicians may step up efforts to aid banks and push investors to accept bigger losses as part of a Greek bailout reflect international pressure to end the debt crisis and domestic opposition to expanding rescues. Moody’s Investors Service late yesterday followed its three-level downgrade of Italy by warning that euro-area nations rated below the top Aaa level may see their rankings cut.

Merkel said that she supports recapitalizing European banks “if there is a joint assessment that the banks aren’t adequately capitalized” and finance officials develop “uniform criteria.” Germany is ready to discuss possible bank aid at this month’s EU summit, she said.

Bank Index Rises

France’s Credit Agricole SA and Dexia SA led the 46-member Bloomberg Europe Banks and Financial Services Index up as much as 3.7 percent today. Credit Agricole climbed 9 percent to 5.12 euros of 4:15 p.m. in Paris trading, while Dexia was up 3.7 percent to 1.05 euros.

European banks may need more than 140 billion euros of capital through a program similar to the U.S. Troubled Asset Relief Program, Morgan Stanley analysts say.

“Policy makers increasingly want to build a large solvency buffer,” the analysts led by Huw van Steenis said in a note today. “We think banks in core Europe need to be recession proofed and banks in the periphery depression proofed.”

EU officials are working on plans to boost bank capital to contain the debt crisis, the International Monetary Fund said.

“There is no secret at all that European authorities and the European Commission are all working together on a plan to bring more official capital, more public-sector capital, into the banking sector,” Antonio Borges, the IMF’s European department head, said today in Brussels. “We would recommend that it move to a European approach,” he said. “More should be done on a cross-border basis.”

Dexia Plans

Officials in France and Belgium are preparing a bailout for Dexia. Dexia will pool its troubled assets into a “bad bank” with Belgian and French government guarantees to protect depositors and its municipal-lending business after struggling to fund itself.

The lender may hive off its French municipal loan book into a venture funded by state-owned La Banque Postale and Caisse des Depots et Consignations, and seek buyers for its Belgian bank, Denizbank AS in Turkey and its asset-management division, according to a person with knowledge of the talks.

EU spokesmen moved to damp speculation triggered by a Financial Times report late yesterday on progress toward a bank- recapitalization plan.

‘An Initiative’

EU Economic and Monetary Commissioner Olli Rehn “doesn’t speak of a concrete plan in hand,” his spokesman, Amadeu Altafaj, said today in Brussels. “He speaks of an initiative, of discussions in progress and he pleads for a European approach.”

The commissioner “clearly indicated he doesn’t have a new recapitalization plan,” the commission’s chief spokeswoman, Pia Ahrenkilde Hansen, said.

The speculation about efforts to support banks followed a finance ministers’ meeting in Luxembourg in which officials signalled their intent to prod investors to cover more of the cost of bailing out Greece. Finance Minister Wolfgang Schaeuble said that Germany’s Soffin bank-rescue fund, set up in October 2008 during the financial crisis, may need to be reinstated, his spokesman told reporters in Berlin today.

“Many euro countries have now realized that the July deal is too advantageous for investors and there’s too little investor burden sharing,” Finland’s Finance Minister Jutta Urpilainen said today in Helsinki. “This was discussed at Monday’s euro group; how can we find a way to increase burden sharing? No solution’s been put forward so far.”

Greek Swap

Banks are negotiating a bond swap with Greece that would cut the nation’s debt load at a cost to investors estimated at about 21 percent. They pushed back at suggesting deeper losses.

It would be “counterproductive” to reopen the Greek deal now that investors have signaled support and the euro area’s 17 parliaments are close to ratifying the agreements, Charles Dallara, managing director of the Institute of International Finance said, said in a telephone interview yesterday. IIF represents more than 450 banks and took part in the July 21 negotiations that led to a second rescue package for Greece.

When the bailout was announced, banks and other bondholders were expected to contribute about 50 billion euros alongside 109 billion euros in public funds and a proposed 20 billion-euro debt buyback. Schaeuble told reporters in Luxembourg yesterday that the deal may require “adjustments” depending on whether Greece has met its commitments and other developments.

Greek 10-year bonds trade for about 39 cents on the euro and two-year notes for about 43 cents, according to data compiled by Bloomberg.

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Chancellor Angela Merkel, the biggest contributor to European bailout funds, said investors may have to take deeper losses as part of a Greek rescue as she signaled Germany s readiness to join efforts to recapitalize banks. Merkel held talks in Brussels today with European...
Wednesday, 05 October 2011 11:59 AM
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