Greek Senior Bank Bonds Fall on Dijsselbloem Bail-In Comment 

Senior bonds of Greek banks tumbled after Euro-area finance ministers protected depositors from any losses in the nation’s 86 billion-euro ($96 billion) bailout.

Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem said on Friday depositors will be shielded from any losses resulting from the restructuring of the nation’s financial system. The decision puts senior bank bondholders in line for losses if Greek lenders tap into any of the financial stability funds set aside in the new bailout.

“The bail-in instrument will apply for senior bondholders, whereas the bail-in of depositors is explicitly excluded,” Dijsselbloem said. His comments relate to European Union rules to make private investors share the cost of fixing troubled banks.

Eurobank Ergasias SA’s senior unsecured 4.25 percent June 2018 bonds dropped 33 percent to 37 cents on the euro at 11:30 a.m. in London. Piraeus Bank SA’s senior unsecured 5 percent March 2017 bonds plunged 27 percent to 38 cents, while Alpha Bank AE’s senior unsecured 3.375 percent notes due June 2017 dropped 15 percent to 58 cents, according to data compiled by Bloomberg.

Greece’s euro-area creditors made adoption of the European Union’s Bank Resolution and Recovery Directive, or BRRD, a precondition of the bailout. The directive, which makes it easier to impose losses on senior creditors, should rank senior unsecured bondholders and depositors equally, said Olly Burrows, London-based financials analyst at brokerage firm CRT Capital.

“It is not clear how they will make it possible to bail-in bonds while excluding deposits, but as we have seen in other problematic situations, where there is a will there will be a way,” Burrows said. “We call Dijsselbloem’s solution a bail-up: part bail-out, part bail-in and part cock-up.”

Source: Bloomberg – Greek Senior Bank Bonds Fall on Dijsselbloem Bail-In Comment

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