HFSF portfolio sees its value diminish

Greek bank stocks’ main stakeholder, the state’s Hellenic Financial Stability Fund, has lost more than 15 billion euros during the recent lashing suffered by the lenders’ blue chips on the Athens bourse. According to Friday’s stock market closing prices, the value of the four systemic lenders in the bank bailout fund’s portfolio now stands at no more than 7 billion euros, against 19.7 billion in June 2014 and 22.6 billion at the end of 2013.

On the bright side, the loss is still just on paper, and if negotiations between Athens and its creditors reach a happy conclusion, the stock market should quickly make up most of the lost ground and the value of the HFSF holdings will grow accordingly. The fund controls 66.9 percent of Piraeus Bank, 66.4 percent of Alpha, 57.2 percent of National and 35.4 percent of Eurobank.

There are a number of reasons for bank stocks’ steep southbound course over the last few days. The first concerns the prospects of tighter government control over administrations. Prime Minister Alexis Tsipras has repeatedly claimed the state will exercise strict control over banks and carry out changes in management.

The second reason is related to the deterioration in liquidity conditions. In December deposits shrank by about 4 billion euros, while in the first few weeks of January the outflow from bank accounts came to at least 8 billion. The reliance on emergency liquidity assistance (ELA) for cash flow cannot be taken for granted given Friday’s standoff between Athens and the head of the Eurogroup.

Another reason is this month’s increase in nonperforming loans, after several months when the creation rate of new bad loans had been slowing. Households and enterprises appeared to be hoping that the change in government would ease their obligations.

The crucial point that has made the difference has been the rapid deterioration in the political and economic climate. The storm of statements by new government officials that constitute a radical shift in economic policy, risking a head-on collision with the country’s EU peers, have shocked investors, leading stock prices to crumble. On Wednesday bank stocks plunged an unprecedented 27 percent. Since early December the loss has amounted to 40 percent, while the decline has come to 60 percent from last June.