Banks and pension funds accept Greek bond offer

Major banks and pension funds threw their weight behind Greece’s bond swap offer to private creditors yesterday, making it increasingly likely that the deal will go through and clear the way for a bailout package to avert a chaotic default.

A group of 30 banks and funds representing 40.8% of Greece’s €206bn of outstanding debt said they would take part in the deal, joining other Greek and foreign banks and pension funds which have already pledged to accept the offer.

A senior Greek finance ministry official told Reuters the government was now optimistic that well over 75% of eligible bonds would be submitted, easily clearing the original minimum threshold it had set for the deal to proceed.

In total, banks, insurers and pension funds holding bonds worth around €120bn have already declared they will take part.

Athens, totally reliant on international support to stave off bankruptcy, has asked its private sector creditors to accept steep losses on their Greek bond holdings as it fights to cut a public debt burden of 160% of gross domestic product.

They are being asked to give up almost three quarters of the value of their investments in return for new Greek bonds. If they do not accept the offer, Greece has threatened to pay them nothing.

The EU and IMF have made a successful bond swap a pre-condition for approval of the €130bn ($170bn) bailout agreed last month.

With just over a day to go before the offer expires, the latest commitments bring the declared total closer to the minimum level needed for Greece to enforce losses on any holdouts, ensuring the deal goes through.

Amid some signs that acceptances had picked up strongly on Wednesday, a string of international banks and insurers, ranging from Germany’s Munich Re to Bank of Cyprus declared they would back the deal.

But after months of tortuous negotiations and repeated setbacks, senior bankers and officials remained cautious ahead of the deadline.

“About the private sector deal — I don’t have a crystal ball. I cannot predict this with certainty. But I repeat, for us, this is a condition,” Dutch finance minister Jan Kees de Jager told parliament.

Only €177bn of the debt is covered by Greek law, and it was not immediately clear how much of the debt covered by Wednesday’s commitment was under Greek law and how much under international law.

Athens only has the power to enforce losses on holders of bonds written under Greek law, not the 10% or so of its debt covered by English or other international law.

Financial markets have become more jittery the closer the Greek bond deadline has got, and worries about the bond swap lifted demand for German bonds on Wednesday, as investors sought a safe haven for their money before the deadline.

Greece, unable to borrow normally on the bond

markets, urgently needs the bailout to keep paying its bills while it attempts to make deep structural reforms to its shattered economy, now in the fifth year of deep recession.

Eurozone finance ministers are due to decide whether to release the €130bn package during a conference call on Friday but they have already approved the bailout, subject to the private sector creditor agreement.

Greece has staggered from one deadline to another since the eurozone crisis blew up in 2010 and several international partners have said more support will be needed before long.

— Reuters