greek banks ned to find 15 billion euros ; PSI talks hit a wall; hedge funds hold their ground

Banks must find 15 billion euros

 BlackRock report finds recession has taken a heavy toll on local credit systemBy Yiannis Papadoyiannis
The countdown for the recapitalization of domestic banks has started after BlackRock Solutions on Friday reported additional funding needs of about 15 billion euros for local lenders.
The US company, commissioned by the Bank of Greece to assess the loan portfolio of Greek banks, delivered its much-awaited report yesterday and the conclusion is that the recession has had a considerable impact on the country’s credit system.
Bank sources believe that the dramatic downgrade of the country’s growth prospects by its foreign creditors for 2012 and 2013 led to a significant toughening in the criteria used by BlackRock.
“It would appear that the picture is worse than we had originally estimated,” an executive official of a Greek bank said.
The report’s conclusions and the implementation of a deal on a Greek debt haircut will determine the sum of the additional capital requirements for local lenders, with the horizon being seen as the end of 2013. Bank of Greece officials are already processing the report’s data, with the results expected to reach the banks by the end of February.
Then it is up to commercial banks to submit plans to the central bank for their capital strengthening in order to cover their needs. They will include ways to find funds and a description of their new business plan in terms of how they will adjust to the new financial environment. These plans will need to be submitted and approved by the Bank of Greece by the end of April. Bain & Company, one of the world’s top consultancy companies, will be assisting the Greek central bank in this process.

Banks are making plans for the sale of real estate properties, subsidiaries and even healthy loan portfolios in order to increase their capital base and avoiding sinking. They are also planning for the repurchase of hybrid capital at a considerable discount, which National Bank has already done, to improve their equity capital. Already Eurobank EFG has decided to sell Polbank in Poland to Raiffeisen, while Piraeus Bank is looking for a buyer for its subsidiary in Egypt. and ... PSI talks stall, fueling fears  Dispute over bond coupon, jurisdiction ahead of scheduled visit by troikaTalks between government officials and representatives of private holders of Greek bonds on a debt swap (dubbed PSI) stalled on Friday following a dispute about the interest rate levels and law that will apply to the new bonds. The development fueled concerns about a possible default if talks collapse and European Union leaders refuse to add more funds to a second Greek bailout. Government officials tried to put on a brave face, with Finance Minister Evangelos Venizelos reportedly saying that the talks were at a “good level” and would resume next Wednesday -- a day after officials from the European Commission, European Central Bank and International Monetary Fund, or the troika, are to arrive in Athens. But the Institute of International Finance (IIF), a steering committee representing private investors, issued a curt statement. The IIF’s proposal has “not produced a constructive consolidated response by all parties,” it said. “Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.” The statement followed talks between IIF chief Charles Dallara and Jean Lemierre, adviser to France’s BNP Paribas, who are representing investors, and Prime Minister Lucas Papademos and Venizelos. The talks stalled due to a dispute over the level of the interest rate on the new bonds investors will be asked to take and over investor demands that British law govern these bonds. Sources said investors want an interest rate above 5 percent while Greek officials are reportedly willing to agree to around 4 percent. German authorities reportedly want a much lower coupon of 2 to 3 percent while the IMF is said to have proposed a rate of 3 to 4 percent. The government is reportedly drafting legislation that would introduce collective action clauses (CACs) into bond contracts to ensure 100 percent participation in the debt swap. Even Brussels, which has been insisting that the debt swap be voluntary as agreed at last October’s EU summit, is now said to be considering the use of CACs. Government officials are also scrambling to finalize a catchall bill of reforms, to be voted on by next Thursday. Troika officials have made it clear that they expect to see progress on reforms. They are also expected to push for action on the lowering of the minimum wage and the reduction of holiday bonuses in the private sector. Papademos on Friday played this down, stressing that the issue of labor relations would be discussed. The premier is tomorrow to receive German Foreign Minister Guido Westerwelle in Athens for talks expected to focus on the problematic debt swap talks and on the reform effort. and..... Hedge funds prepare to cash in on Greek deal Hedge funds are positioning to profit from a plan to slash Greece's towering debt pile as Athens enters final talks that could sway the country's membership of the euro. York Capital, the $14 billion fund part-owned by Swiss banking giant Credit Suisse, New York-listed Och Ziff and $10 billion-strong Marathon Asset Management are among those who collectively may have built up sufficiently large positions to scupper the bailout deal, several sources close to the debt restructuring told Reuters. The deal asks creditors to voluntarily write down 50 percent of the notional value of their bond holdings. But hedge funds may opt out, hoping that Athens will let them get away with it to save itself political embarrassment. "I think we'll hold out. People are so slow in Europe and by the time they've got everything in place logistically this might be the one window where investors might be paid back in full,» said one hedge fund manager who owns Greek bonds. The stakes for Greece are high. Without the deal, the international lenders will not bail Athens out a second time, which means it will likely default around March 20, when a 14.5 billion euro (12.1 billion pounds) bond falls due. But hoping that Greece will pay out after all looks increasingly like a dangerous strategy. According to three senior euro zone sources on Thursday, the country is likely to force all creditors into the deal. "Unless these guys are all teaming up and getting a really good law firm, I still think it's going to be touch and go,» said one of the sources close to the talks. "I think politically it would look bad for the Greeks and the Europeans to let (a payout to hedge funds) happen... This is the exact thing the official sector hates." Funds that have bought credit insurance on the bonds they own could gain by staying away however, if the changing of Greek bond contracts would be seen to amount to a default and trigger Credit Default Swaps CDS.L. Reuters spoke to thirteen sources including hedge funds, advisors and sources familiar with current Greek debt trading, but they declined to reveal details of their strategy in the Greek debt restructuring. New York-based York Capital Management, part-owned by Swiss banking giant Credit Suisse, is among the funds to have bought Greek debt, two of the sources said. One source familiar with the firm said it owned a chunk of a Greek bond maturing in March, and was betting there would be a last minute bailout for the country. Och-Ziff Capital Management, the $28 billion fund founded in 1994 by Daniel S. Och, also has a position in Greek bonds, three sources said. Och Ziff and York declined to comment. Many funds have followed a more traditional strategy of buying the Greek bonds at distressed prices from banks keen to get the toxic paper off their books. This means that these funds might sign up to the deal, if the terms on offer are better than the price they paid for their bonds. Others might hold out, hoping enough creditors will do the same and enabling them to exact a better payout from Greece. Some 206 billion euros of Greek debt is in private hands, but it is unclear how much of that is owned by hedge funds. Up to 25 percent of private creditors have not been identified, according to one source close to the talks. Other firms with an interest include Madrid-based Vega Asset Management, which resigned from the committee representing private creditors in talks over the bailout last year. Founded in 1996 by former Banco Santander star trader Ravinder Mehra, Vega was once among Europe's largest hedge funds, managing close to $12 billion before suffering outflows. Vega declined to comment. Two New York-based funds with decades of experience profiting from buying distressed debt are also involved. One is Marathon Asset Management, a member of a private sector creditor-investor committee negotiating with Greece. A $10 billion credit focused fund run by Bruce Richards, it has an emerging markets credit team which specialises in distressed corporate and sovereign debt. The other is Greylock Asset Management. It is headed by Hans Humes, who represented some $40 billion of creditor holdings during Argentina's record-breaking restructuring, and now sits on the steering committee. Funds who have bought Greek debt in the last few months are likely to have paid anywhere between 20 and 45 cents on the euro, depending on the maturity. By signing up to the deal, which is for a 50 percent haircut, they would still make a profit.