Bankers set to oppose buyback plan

Bond scheme is bereft of financial logic as it constitutes double borrowing, credit sector chiefs argue By Yiannis Papadoyiannis

Bank managers are planning to express their opposition to the credit sector’s likely participation in the bond buyback program at a meeting with Finance Minister Yannis Stournaras scheduled for Thursday.

The administrations of all commercial banks are stressing that they cannot possibly participate voluntarily in a program that leads to the financial exhaustion of shareholders.

Senior bank officials told Kathimerini that besides the legal consequences of a possible voluntary participation, such a serious decision, which would signify a change in the lenders’ portfolios, cannot be approved by their governing boards alone. They underlined that such a decision would require discussion and approval at general shareholders meetings, but that would compromise the buyback plan as it is a process that takes time.

In their meeting with Stournaras the bank managers will ask for their exemption from the buyback and propose alternative solutions to the problem.

They will also request changes to the terms of the recapitalization process. The main point is how to reduce the amount of capital requirements, which could take place via the bond swap or through the guarantee of bank bonds by the European Financial Stability Facility (EFSF), which would allow for their valuation at their nominal value. That would reduce capital needs by 11 billion euros at once and render recapitalization much more attractive for private shareholders. The more funds private investors contribute in the recapitalization process, the less money the state will have to pay through the Hellenic Financial Stability Fund (HFSF).

Bank officials argue that the scheme proposed for the buyback process is bereft of financial logic as it constitutes double borrowing and additional burdening for taxpayers. By contrast, they say, the guarantee of bonds would have a better result at no additional cost. However these alternative plans were rejected by the representatives of the country’s creditors a few weeks ago and there is no sign of them changing their attitude on the issue.

Analysts say that banks are right to protest as in spring they were burdened by the 53.5 percent bond haircut and a few months later the state is asking to buy the bonds back at 30 percent of their value.