Earlier today we asked “why this is happening” pointing to the stock price of the trading ADRs of the National Bank of Greece which unlike the broader market, are not swept in today’s euphoria. We now may have the answer, and the distressed hedge funds that invested in Greek assets in recent months hoping for another “make whole” bailout may not like it.
According to the WSJ, even as Greek banks, severely depleted of cash and eligible collateral they can post with the ECB, stand to fight another day (and potentially face more withdrawals as soon as the Greek banks reopen supposedly on Monday) thanks to another €900 million liquidity infusion, investors in Greek bank shares will be less lucky: “to ensure a new bailout, investors in the country’s banks faced the prospect of their holdings being “wiped out” under the terms of a €25 billion recapitalization plan.”
WSJ notes that “major investors including Fairfax Financial Holdings and Wellington Management Group decided to increase their stakes in Greek banks in recent months, according to data from the Athens Stock Exchange.” Which may not have been wise, because citing an analysis by Barclays’ François Cabau “bank shareholders and creditors are at risk of significant losses.”
It goes on to note that “any new recapitalization of the banks is likely to hit shareholders and certain bondholders under a new set of European regulations—the Bank Recovery and Resolution Directive—enacted at the beginning of the year.”
And since Greek banks are woefully undercapitalized and there is already a danger of depositor bail-ins, all securities that are below the depositor claim in the cap structure will have to be impaired, as in wiped out:
“To avoid imposing losses on depositors and senior bondholders at the Greek banks, shareholders will likely be “wiped out†under the European Stability Mechanism recapitalization, according to Alberto Gallo, head of macro credit research at Royal Bank of Scotland.”
