Goldman Sachs said on Wednesday that there is a rising probability of a voluntary restructuring of Greek debt.
GS said in a report regarding European Banks that a spike in Greek CDS to above 1,300bp marks a new all time high, demonstrating the market’s perception of a rising probability of debt restructuring.
It estimates that a 20%-60% haircut of Greek sovereign paper corresponds to an aggregate European bank capital hit of €13-41b, which is small and represents only 1%-3% of total Tier 1 capital in the context of the sector aggregate.
But for Greek banks Goldman estimates the impact would be €8-25b or 26%-80% of total Greek bank capital and 50%-160% of current market cap. “Greek banks would realistically require substantial additional capital to cover for incremental losses from a theoretical restructuring”, it notes.
The first round capital destruction of Greek restructuring would be severe for the domestic banks, said GS.
According to official data and GS estimates, Greek and Cypriot banks hold 60% of Greek debt, while German and French banks hold 19% and 9% of the debt.
(source: capital)
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