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The Biggest Greek Banks “Have Failed,” and “Resolving” Them Won’t Work: Fitch
The Biggest Greek Banks “Have Failed,” and “Resolving” Them Won’t Work: Fitch
It’s not like Fitch was ahead of the curve when it declared on Friday that the “four largest Greek banks have failed…” two days after downgrading them to “RD” (Restricted Default) because they’d defaulted on their depositors.
But Fitch shed a gloomy light on just how tough – or rather impossible – it will be to move forward so that these banks can re-open their doors, even if negotiations between Greece and its creditors can be brought back to life.
The four banks – National Bank of Greece, Piraeus Bank, Alpha Bank, and Eurobank Ergasias – account for 91% of Greek banking assets. Already bailed out twice since the Financial Crisis, their shares were penny stocks while they were still trading on the Athens Stock Exchange, now also shut down.
They have two toxic problems: they’re illiquid and insolvent. Either one would have been enough to topple them.
They’re illiquid because the Greeks have zero trust in them and have been desperately yanking their euros out while they still could.
These banks would have toppled long ago if it hadn’t been for the €40 billion the ECB injected into them directly and for another €89 billion in Emergency Liquidity Assistance (ELA) through the Bank of Greece. The money was then passed on to the Greeks via cash withdrawals. But last weekend, the ECB shut off the spigot.
And they’re insolvent because the quality of their assets – mostly loans extended to Greek businesses and individuals – has collapsed at a blinding speed and has wiped out their capital. According to Fitch, by the end of March, 36% of the outstanding loans were 90 days or more past due. These “arrears may since have risen significantly.”
Stories have been circulating how Greeks are “strategically defaulting” on their debts. From their point of view, banks were black holes. Why pay them? They were proven right. But it hastened the collapse of the banks.
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LEAKED (Denied then Confirmed): ECB Not Sure If Greek Banks Can Open Monday
LEAKED (Denied then Confirmed): ECB Not Sure If Greek Banks Can Open Monday
There seems to be a growing willingness in the Eurozone to get this over with, to let Greece default and go from there – with all the options that this might entail. But even if a last-minute bailout agreement materializes, one thing stands out in this sea of chaotic uncertainty: Greek banks are toast.
The top four – National Bank of Greece, Piraeus Bank, Alpha Bank, and Eurobank Ergasias – account for 91% of Greek banking assets. They’ve already been bailed out twice. Their shares are penny stocks. They have two toxic problems: liquidity and solvency. Either one can topple them.
Liquidity is a problem because the Greeks have zero trust in their banks and have been yanking their euros out with increasing desperation. They won’t ever forget what happened to depositors in Cyprus. Deposits have plunged about 20% since November, to €130 billion. According to Reuters, “banking sources” said that just during the first three days of this week, Greeks have pulled €2 billion from their accounts – about €667 million a day, compared to prior weeks when they’d withdrawn €200 to €300 million a day.
Meanwhile, funding from central banks has jumped to over €120 billion: €40 billion from the ECB directly; and €83 billion via the Emergency Liquidity Assistance (ELA) through the Bank of Greece. Thus, deposits and central-bank funding are rapidly approaching a dreadful level: parity.
“There’s a real possibility they’ll fold, not just Greece but the banks themselves,” Fitch Managing Director James Longsdon told CNBC.
And ELA, the lifeblood of Greek banks, is conditioned on two things: available collateral and solvency.
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