Greek banks set to unveil big losses for 2011

Greek banks will post deep losses for 2011 when they report results on Friday, with the spotlight on the scale of the capital hit they suffered from big bond writedowns and provisions for bad loans.

Battered by a debt crisis and recession, Greece’s big four lenders — Alpha (ACBr.AT), Eurobank (EFGr.AT), National (NBGr.AT) and Piraeus (BOPr.AT) — will show the full damage, with investors focused on the capital implications.

The results do not, however, include last month’s debt restructuring by Greece, which inflicted real losses of about 74 percent on bondholders, wiping out 22 billion euros (18 billion pounds) of the banking system’s 23.8 billion in core Tier 1 ratio, according to International Monetary Fund estimates.

Banks, holders of about 45 billion euros of government bonds, will likely book the bond swap hit on a net present value (NPV) basis as the recapitalisation plan for the sector and accounting treatment issues are not finalised.

This is the reason most analysts would not give loss estimates. Banks will report annual results after the Athens stock market closes at 1430 GMT (1640 local time).

A previous March 31 deadline to report earnings was extended to April 20 to give banks more time to assess the impact of the debt swap and prepare their capital plans.

“It is difficult for us to come up with estimates as the precise accounting treatment of the bond swap losses is not known,» said analyst Nick Koskoletos at Eurobank Equities.

Applying a 75 percent haircut on some 35.6 billion euros of bond swap eligible assets — Greek government bonds and state-guaranteed loans — the pre-tax impairment for the four large banks may reach 26.7 billion euros, said Euroxx Securities analyst Manos Giakoumis in a note.

Banks will need to fill the resulting capital shortfall and meet a core Tier 1 target of 9 percent by end-September demanded by the Bank of Greece (BOGr.AT), the country’s central bank.

On this front, banks have acted to boost their core capital, including issuing preferred shares to the government, buying back hybrid securities and selling foreign subsidiaries.

Still, with the economy mired in recession and unemployment at a record 21.8 percent, asset quality will have deteriorated, meaning banks’ non-performing loans are certain to rise from 14.7 percent of their books at the end of the third quarter.

Banks are unlikely to spell out capital plans to address the shortfall while the government still works on the structure of the recapitalisation plan, largely funded by the Hellenic Financial Stability Fund (HFSF).

On Thursday, the fund received 25 billion euros of European Financial Stability Facility (EFSF) floating rate notes and has been cleared to provide letters of commitment to banks that it will underwrite their capital needs. [Reuters]