ECB allays bank fears over Greek debt plan
A restructuring of Greece's debt does not pose a serious threat to Europe's biggest banks after the European Central Bank (ECB) propped up the country's finances, Goldman Sachs said yesterday.
Goldman analysts said the impact on European banks would be much smaller now than a year ago at the height of Greece's sovereign crisis. They calculated that a haircut of 20-40% on Greek government bonds would cause losses of €13bn (£11bn) to €41bn or 1-3% of tier one capital for Europe's banks.
"By extending €91bn of refinancing facilities to Greek banks (and a further €153bn to Portuguese and Irish banks), the ECB has effectively disintermediated the 'core' banks from the periphery," the analysts said.
"As a consequence, the knock-on effects of a restructuring would be milder for European banks today than, say, just last year."
While insulating banks from other European countries from the full consequences of a Greek debt restructuring, the ECB's support has left Greek banks on the hook.
Up to 80% of Greek banks' tier one capital - the main buffer against losses - would be wiped out if they were forced to accept 60% of face value for their government' bonds, Goldman said.
Under that scenario, the Greek banks would need capital injections to stop a run on their deposits, Goldman said.
Goldman's optimistic analysis could not stem the continuing surge in the price of gold as investors focused their fears on the United States.
Gold hit a new high of $1,508 an ounce yesterday - the precious metal's fifth straight record session.