German banks can stomach Greek debt

Financial Times
September 29, 2011

German banks are resisting political pressure to take a bigger writedown on their Greek bondholdings so that Athens can get past a financing crunch.

Many analysts are confident however that even if German banks were forced to stomach as much as a 50 per cent writedown on their Greek debt portfolios, German institutions would experience no insuperable problems, assuming the crisis is contained to Greece.

Greece’s private sector creditors reached a tentative deal in July to swap their Greek bonds for longer-dated paper that would entail a 21 per cent reduction in the value of their holdings.

Josef Ackermann, Deutsche Bank’s chief executive, on Sunday warned against forcing private bondholders to write down their Greek bond holdings further saying he doubted whether many banks would participate. “It is not feasible to reopen the agreement,” he said.

It is no small irony, however, that if German banks are ultimately required to take a larger writedown, the German state could end up being one of the biggest losers.

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