Thursday, January 7, 2016

Event Of The Year 2015 In Greece: The Bank Recapitalization!

For those who have already forgotten about the recent recapitalization of the four large Greek banks, here is a very informative summary. 2015 was full of major and unique events in Greece. To me, the bank recapitalization was arguably the most significant one. Not because it was implemented so flawlessly; not because it was so successful. No! I consider it as the most significant event for the simple reason that what happened there was so absolutely unbelievable. So unbelievable that it may not even have dawned yet on many people what actually happened there.

Think back 5 years to the beginning of the crisis. Imagine that a consortium of top-tier European banks would have made a proposal to acquire a majority of the four large Greek banks as part of an effort to stabilize the Greek banking system. Finally, imagine that those banks would have offered top Euro for the shares of those banks (and in those days, those shares were still quite valuable).

There would have been an outcry of public fury in Greece. Foregoing control over the domestic banking sector in favor of foreign banks? Having future policy decisions being made by foreign investors abroad? Such an outcry would have happened in most other countries where something like that would have happened as well. The banking sector is always a very sensitive sector of the economy and no one really wants to forego domestic control.

And what happened last year under a radical leftist government? Leftist who until then had presented themselves as protectors of national interests; as haters of financial speculators; as haters of profit-seekers? Well, get this: under such a radical leftist government, the majority of the four large Greek banks was sold off to foreign financial investors, to true speculators!

And going forward, whenever the boards of these four banks meet, possibly as often as once a month, a minority of radical leftists will sit around a conference table where the majority is composed of financial speculators. The radical leftists represent only a minority interest in those banks and when the majority takes decisions with which they disagree, they will simply have to accept them.

It is not too long ago that many observers feared that the leftist Greek government would decide to nationalize the Greek banks. Perhaps even expropriate private investors. Instead, they did something which not even the Chicago Boys would have dared to do in Chile 40 years ago --- hand over control over the domestic banking sector to foreign speculators and that for a little more than a song!

To pull something like this off in a short time and without the streets overflowing with (not only leftist) protestors is quite a feat! Whether is was a positive or negative feat remains to be seen.


  1. The Xafa summary is a bit sloppy in the numbers (e.g. in the bailout package, €25bn was foreseen for bank recap, not €50bn as stated in the text).

    There's still a significant proportion of Tier 1 capital within Greek banks in the form of DTAs (Deferred Tax Assets) - essentially state-owned capital (or shouldn't it be called "virtual" capital, since it doesn't really exist). Moreover, it's just a matter of time before the new CoCo's (owned by the HFSF i.e. by the Greek state) will be converted into shares. In short, the banks have "almost" been nationalised, partly at the expense of the ESM, that financed the CoCo's. Note that the HFSF (Greek state) borrows the €5.3bn CoCo money from the ESM at 1% interest and lends it through to the banks at 8% interest.

    One may wonder why just €5bn was used of the €25bn foreseen. I think this third recap won't be the last one. Keep in mind that there's still €75bn or so of Emergency Liquidity Assistance - something that "healthy" banks don't need in permanence.

  2. The Syriza period is a weird one, a period of contradictions and intense contrasts. Say what you want about them, they are the first Greek government to actually do something about non-performing-loans and the faltering pension system.