Bond swap plan in the balance

Uncertainty continued to hang on Wednesday over the success of the voluntary Private Sector Involvement (PSI) in the scheduled swap of Greek bonds that is part of the second rescue deal for Greece.

This uncertainty is mainly attributed to an apparent general reluctance on behalf of lenders, especially French and Belgian banks, to include maturities beyond 2020 in the plan.

However, Frank Vogl, a spokesman for the Institute of International Finance, which thrashed out the plan, was reported by Bloomberg as saying that rising bank participation in the debt swap is expected.

The IIF said that so far 40 financial institutions have explicitly stated that they will join the 159-billion-euro rollover. Those companies own about 70 billion euros in Greek government debt, or about 50 percent of the bonds eligible for the exchange. ?Many institutions have indicated through their national authorities that they would participate in the exchange but they have not authorized the IIF to post their names so far,? Vogl said. ?We expect the participation level to rise as the process moves ahead in the weeks to come.?

Sources estimate that total participation so far represents no more than 60-65 percent of the value of bonds to be exchanged, and there is concern that the target of 90 percent, or 135 billion euros, will not be attained.

Outlining the plan in a a document sent last week to the finance ministries of countries whose banks and insurers hold Greek debt, the government suggested that it may scrap the program if too few institutions participate.

The accounting losses of Greek banks as a result of the debt swap are estimated at around 4 billion euros. They have already stated their intention to participate in the program for bonds totaling a nominal value of about 27 billion euros. Those remaining to clarify their intentions are Hellenic Postbank and ATEbank. Participations must be declared by September 9.

Greek insurers in total hold Greek state bonds of more than 4 billion in value, and the participation of the largest companies, like Ethniki and Eurolife EFG, is considered certain. Other, foreign subsidiaries, like Allianz, AXA, Credit Agricole, Eureko, Generali and Metlife Alico, have confirmed their intention to participate.