April 21, 2011
The impact of a Greek debt restructuring on non-Greek European banks would be “milder” now than a year ago thanks to European Central Bank loans, according to Goldman Sachs Group Inc. analysts.
A so-called haircut of 20 percent to 60 percent on Greek government bonds corresponds to losses of between 13 billion euros ($19 billion) and 41 billion euros for European banks, Goldman Sachs banking analysts led by London-based Jernej Omahen said in a research note today. That represents 1 percent to 3 percent of their aggregate Tier 1 capital, they said.
“In the context of the sector aggregate, this is small,” the analysts said. “By extending 91 billion euros of refinancing facilities to Greek banks (and a further 153 billion euros to Portuguese and Irish banks), the ECB has effectively dis-intermediated the ‘core’ banks from the periphery.”
“As a consequence, the knock-on effects of a restructuring would be milder for European banks today than, say, just last year,” the analysts added.
Greek bonds have slumped the past week, with two-year yields exceeding a record 22 percent, reflecting mounting investor expectations that Greece will renege on its debts. The government in Athens has ruled out a restructuring, saying it would devastate domestic banks and hammer the economy.
Greek debt holders who accept that a restructuring is inevitable should push for it to be executed as soon as possible, Citigroup Inc. analysts said in a separate note today.
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