Greek lenders unveil steep losses in 2011

Greek banks suffered huge losses in 2011 from their participation in the biggest sovereign debt restructuring in history, wiping out their equity capital in some cases.

However, key decisions about the terms of the expected recapitalisation plan for the banks will probably be postponed until after the May 6 election, according to a member of the cabinet.

The government had extended the deadline for banks reporting 2011 results to April 20 in an effort to ensure a plan was in place to recapitalise the lenders, but finalising the plan has so far not proved possible.

“It is correct to say key decisions [about the recapitalisation plan] will most likely be taken by the next government,” the cabinet member told the Financial Times.

The cabinet will meet in the next few days to discuss the plan, but decisions on key terms aimed at attracting private money will not be taken before the elections, he added.

Analysts and bankers attributed the delay partly to government concerns about a political backlash before the elections.

The Greek coalition government is backed by the two main political parties, the socialist PASOK and the conservative New Democracy. The conservatives lead in the polls but they are not faring as well as they expected, while the socialists are polling badly.

The banks have been hard hit by losses related to the sovereign debt restructuring, which includes a private sector involvement (PSI) agreement, which imposes substantial “voluntary” losses on bondholders.

Analysts estimate Greek banks held government bonds of €42bn in nominal value and several more billions of euros in state-guaranteed securities prior to PSI. The total notional haircut under PSI was 53.5 per cent, but the new bonds in the exchange have sustained significant losses, forcing banks to take a bigger hit.

National Bank of Greece, the country’s largest bank, reported group losses of €12.3bn in 2011, compared with profits of €406m a year earlier, after taking a hit of 75 per cent on its PSI eligible bonds. PSI-related losses amounted to €9.4bn after recognising a small fraction of the associated tax benefits, it said.

Alpha Bank recorded PSI-related after-tax losses of €3.8bn from government bonds and state-guaranteed securities.

Eurobank EFG had PSI-related after-tax losses of €4.6bn, taking a sovereign debt impairment of 79 per cent. Total losses after tax amounted to €5.5bn last year.

Eurobank EFG said the Hellenic Financial Stability Fund (HFSF), a backstop for viable lenders with a broader role in overhauling the banking sector, will immediately underwrite capital needs of €4.2bn.

Piraeus Bank reported PSI-related losses of €5.9bn in 2011, with group losses after tax at €6.6bn. The bank said the HFSF has committed to participate in the next share capital increase for up to €5bn.

The HFSF can provide guarantees to viable banks and will cover their share capital increase, following a relatively recent decision by the cabinet on the general framework for the bank recapitalisation.