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Comerzbank Says Another Greek Haircut Coming

After earlier imposing 74 percent losses on banks and investors – and nearly wiping out its own banking industry in the process – Greece will probably give its bondholders another so-called “haircut,” including those who refused to participate before, the CEO of the Frankfurt-based Comerzbank said.
“We will eventually see another debt haircut on Greece, in which all creditors will have to participate,” Martin Blessing said at a conference, Reuters reported, adding that it will probably include the European Central Bank (ECB,) which, with the European Union and International Monetary Fund, make up the Troika supplying Greece with $325 billion in two bailout packages.
Greece in March barely averted the immediate threat of an uncontrolled default on its sovereign debt after a large majority of private creditors agreed to a bond swap deal that let the country write down its debt by $134 billion. Investors took big losses when they said they would swap Greek bonds for new 30-year debt paying lower interest rates. A small minority of private investors also did not participate in the swap deal, and instead prepared for a legal battle over 9 billion euros ($12 billion) of Greek bonds issued under foreign law.
The so-called Private Sector Involvement (PSI) was engineered by then-PASOK Socialist leader Evangelos Venizelos, who is now the party’s leader, but it effectively locked Greece out of the markets because investors didn’t want to buy further bonds which could be devalued.
The move also devastated many small bondholders, such as those in the Diaspora, who put their investments and savings into trying to help their homeland. Prime Minister Antonis Samaras, who promised before the June 17 elections he would make the small bondholders whole again if he won, has not done so.
At the first haircut, the ECB refused to participate because it was not a private investor, but this time Greece could be put in the delicate position of trying to make one of its chief lenders accept losses and not be paid back all that is owed. That could jeopardize its position in the Eurozone as the other 16 countries who use the euro would have to pick up the losses.
But The Financial Times Deutschland newspaper, in an article to be published on Sept. 21, quoted Eurozone sources as saying a further restructuring could involve governments that provided loans to Greece under its first bailout program from May 2010, which could rile taxpayers in other countries. “There is such a discussion,” a senior official told the paper.
Despite Blessing’s projections, the Financial Times said the IMF and the ECB would not take part in a haircut, noting the IMF’s preferred creditor status and the central bank’s fears that the move could amount to direct financing of a government, which it is barred from providing.
The ECB has spent about 38 billion euros on Greek sovereign bonds with a face value of 50 billion euros. Some of the euro zone’s 17 national central banks – the ECB’s stakeholders – also hold Greek bonds on their own accounts. It is not known exactly how much they hold, but estimates are around 12 billion euros.
With Greece still far behind meeting fiscal targets to reduce its deficit from 9.3 to 3 percent by 2014, despite two-and-a-half years of crushing pay cuts, tax hikes and slashed pensions, Blessing said the government may have no other choice but not to pay investors who lent money to the country expecting they would be paid back, with interest. “The sovereign debt crisis is not yet overcome,” he said.
EU officials admitted in July that Greece probably can’t pay its debt and would need yet another debt restricting as tax revenues are far below targets because beleaguered Greeks have cut back drastically on spending and the austerity measures have worsened a five-year recession, putting nearly two million people out of work, has closed 68,000 businesses and is shrinking the economy by 7 percent with no prospect of recovery for many years.
Commerzbank, Germany’s second biggest lender, currently has no Greek sovereign exposure, having held bonds worth about 800 million euros at the end of 2011, 3 billion euros at the end of 2010 and 3.5 billion euros at end-2009.

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