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week, Greeks have pulled €2 billion from their accounts – about €667 million a day, compared to prior weeks when they’d withdrawn €200 to €300 million a day.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.

As of mid-May, there was only about “€40 billion of potentially monetizeable collateral available,” Longsdon said. Some of which has been used up by now. So this won’t last much longer.

And if the ECB deems Greece itself insolvent, then it would likely deem the banks insolvent as well, and liquidity assistance will be turned off, Longsdon said. It would be over for the banks.

But even if Greece got bailed out at the last minute, the banks would still be insolvent, as the Greeks themselves know better than anyone else. Hence the deposit flight. Only balance-sheet sleight of hand is keeping it from seeping to the surface.

The four banks have €12 billion in “tangible core capital” [which excludes Deferred Tax Assets, balance-sheet shenanigans I covered here]. But this “tangible core capital” will be wiped out by the ballooning loan loss provisions that, according to Bloomberg, should amount to €16 billion or more.

These potential provisions of €16 billion are an estimate of the losses generated by €59 billion in loans that are overdue and have been restructured to help borrowers that can’t pay and to beautify the loans for the 2014 financial statements. Otherwise, the banks would have had to recognize them as impaired.

Worst off is Piraeus with a tangible core capital of €2.6 billion and potential new loan loss provisions of €5.3 billion. National Bank is the least bad off with tangible core capital of €3.7 billion barely exceeding its potential loan loss provisions.

And it’s still getting worse.

“We had expected nonperforming loans to peak in the first quarter, but we now expect this sometime in 2016, subject to some kind of economic stability,” Moody’s analyst Nondas Nicolaides told Bloomberg. “There’s a high risk that restructured loans and others showing signs of trouble will slip back into default.”

What percentage of these €59 billion in overdue and restructured loans will default? No one knows for sure. In India’s booming economy, 40% of restructured loans have curdled for good. In Greece’s disaster economy, probably much more. Perhaps 50%. If so, it would amount to €29.5 billion. Greek banks typically provision 55% of bad loans as loss, hoping optimistically to recover the remainder. This would bring the provisions to over €16 billion.

It would totally wipe out the €12 billion in “tangible core capital” these banks have, and they’d be insolvent. The ECB would throw in the towel. ELA would stop. The insolvent banks would become illiquid. Game over.

A bank holiday would be announced over the weekend. The banks would remain closed on Monday and perhaps a few more days. Once they reopen, strict capital controls would prevent the remaining deposits from fleeing.

And just as I’m writing this, it seems to be happening in real time.

An unnamed “official” leaked to Reuters that the ECB had warned Eurozone finance ministers that it wasn’t sure if Greek banks would open on Monday:

The officials said that during the closed-door meeting of the ministers on Greece, the chairman of the meeting Jeroen Dijsselbloem asked European Central Bank Executive Board member Benoit Coeure if Greek banks would be able to open tomorrow.

Coeure answered: “Tomorrow, yes. Monday, I don’t know”

Brussels bureau chief of the Financial Times Peter Spiegel in no time tweeted that the ECB had denied this rumor, only to confirm it a little while later:

2 sr officials who participated in #eurogroup meeting have confirmed to me @Reuters report @ecb worried #Greece banks may not open Monday.

Game over?

That rumors from an unnamed “official” are flying about, are taken seriously, are then denied, only to be “confirmed” by two unnamed officials – rather than ignored or brushed off – is a sign of just how close to the brink Greek banks and Greek debt have moved. Friday is going to be interesting for Greek banks. And this weekend may be it.

But here is the thing: the Greeks could have solved the crisis on their own, if they’d wanted to. Or did they know something that others didn’t? Read…  If Greeks Did This, the Terrible Crisis Would Be Over

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  20 comments for “LEAKED (Denied then Confirmed): ECB Not Sure If Greek Banks Can Open Monday

  1. Vespa P200E says:

    In the mean time Nasdaq hit all time high. Man this is lot worse than Feb 2000…

  2. hoop says:

    hola wolf,

    What i am wondering is the following.

    Greece defaults is now maybe official. Hehe finally…………!!!!!!!!!!!!!!!.

    But.

    1. Will they default on all outstanding debt. Being, I am not sure, but let say 350 billion. I assume that they will default on a part. Let say 30 pct. But this will mean new negotiations. So the story continues. But maybe 10 pct so within 1 or 2 year s we are again at the same point. Or Greece finds something which makes them billions.
    2. The derivate bomb of 800 trillion, sorry I lost the count: Is it going to explode or it turns out to be that all this postponement was to make sure all derivate contacts on Greece have expired. Let me explain. Let say in 2003 somebody bought Greece bonds of let say 100 million and also bought insurance (derivate) in case of default. They paid premium which should pay out in case Greece defaulted before let say 31 march 2015. This kind of contacts have an expiry date. Ergo …… all the postponement was to make sure the banks/insurance companies don’t have to pay in in case of default because the term have expired.

  3. Lessee … the Greeks could solve their problems by putting MORE money into their busted banks. Doing so would also have ended the Great Depression in 1931 or so.

    Putting money into broken banks is why there are depressions in the first place: the money is unencumbered loans to the banks, there busted balance sheets, a ‘holiday’ then, ‘poof!’ … the money is gone. This is what happened in the US during the period from 1931 – 33. Forget about ‘gold ‘confiscation” where the losses (thefts) occurred was in thousands of local banks closed by state bank examiners. Much of the deposit money was never recovered.

    By the time of FDR’s inauguration there were only two states with open (functioning) banks: NY and VA. The Treasury (not the Fed) literally printed money, removed specie from circulation and depreciated the dollar. In a month the banking crisis was on its way to being over

    Bank depositors still lost billion$.

    Right now there are still too many euros stuck (forgotten) in Greek banks, doing nobody no good. Given a few more days, those euros will be stolen … poof! Unlike America in 1933, the Greek central bank will spew drachmas (borrowed from insolvent banks); people will swap these (worthless) drachmas desperately for whatever euros they can get their hands on. The euros (dollars) will be traded in black markets for gasoline (for the precious, precious cars). The price of euros in drachmas will creep higher leaving the (insolvent) Greek banks in the middle. Losing on every turn of the screw the banks will beg for more drachmas leading to (hyper)inflation. By this point the Greeks will be absolutely desperate … and indistinguishable from Ukraine … open to electing a Nazi (Golden Dawn) … anyone who can offer some sort of relief …

    Of course, this will never come. What is underway in Greece is ‘conservation by other means’. If Greece is not lucky it will turn into Syria.

    • ANON says:

      Luck has nothing to do with it. The economies run on promises (lender gets more, debtor gets better, exponentially), for as long as the promises are perceived worthy, and there’s energy to expend for enacting the promised stories. At the tipping point, the promises are deemed either completely unworthy (hyperinflation, Greece) or they are still trusted, but they disappear (deflation, hundreds of trillions of promises being broken in USD).
      What is “conservation by other means”? Sounds puzzling.

  4. hoop says:

    okay lets assume they default: let say on 50 pct. What than ? Are they going to the financial markets and borrow again when a new recession hits and the budget can not be balanced ? at what rate ? How is the agreement between the holders of the bonds on which they defaulted 50 pct. ? will they allow them to do it ? Argentina i think is a nice example. ”Me too” bond holders are waking up now :) !!!
    The story will continue i think.

  5. Andy Sloan says:

    Sister Madeleine Pourcain who died a Poor Clare Nun in 1843 foresaw “Confusion, Confusion, even among the priests”.

    Sister Madeleine also foresaw a “commercial crisis which would see the whole world bankrupt”.

  6. hoop says:

    when your creditor have no money anymore to buy your products, you need to lower your price. ergo, lower commodity prices are the answer.

  7. AC says:

    Emergency liquidity meeting tomorrow (Friday).

    Could be a wildly interesting weekend.

    Also: http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

  8. NotSoSure says:

    The only thing strange is that there are still deposits remaining within the banks. If people had learned from Cyprus, then deposits should be zero. Or maybe these are deposits too small to be confiscated?

    • MC says:

      Sadly (for Greek savers), most European countries require a bank deposit to do business and pay taxes and wages. The money that’s left in Greek banks right now probably belongs to foreign and domestic companies which are forced to have it there if they want to continue working in Greece and it’s probably as close as possible to minimal requirements.
      Can this money be confiscated for a bail-in? Of course. But it would open a new can of worms. If that money is used to save the bank it literally disappears and businesses operating in Greece would fall below minimal legal requirements. Depending on how long the bank holiday lasts, wages, interests on loans and suppliers cannot be paid and payments cannot be received. The damage to an already frail economy would be very serious indeed. How is the Greek government going to deal with this?
      Much more critically, how is Tsipras going to sell this to his own voters? He’s a yard from complete victory (Greece gets debt forgiveness and stays in the EMU, courtesy of ever suffering taxapayers from Lisboa to Danzig) but this is something beyond his control. All he can do is hope ELA will be extended until the deal is finalized and Greeks stop yanking money from banks.
      However the bank holiday with associated bail-in may be part of the face saving measures Greece will have to implement to avoid the German, Dutch, Austrian etc governments to be grilled by an already agitated public. Anti-bail-out sentiment in German speaking countries is at an all time high and growing daily.

      In short Tsipras can have the pie and eat it too, but no cream topping for him.

      • d says:

        You missed the big one, greek Marxists, will back down on early retirement and other pension reforms, or there will be no deal.

        The Troika did not come this far screaming pension reform, to roll on it at the last minute.

        Some debt relief in the future is no win for greece as it was always part of the deal just not laid out in concrete.

    • d says:

      commercial digital go round, greek munis, pension funds, all that sort off stuff.

      The number I want to see is how much savings there is left in personal accounts.

  9. Julian the Apostate says:

    Steve, thanks for the heavy lifting on the FDR issue. After growing up in a union household that adored FDR and sorting out the wheat from the chaff after all the contradictions I’d been observing during my “conversion” to free market capitalism I made a study of the man. Domestically he was a train wreck who made the Depression worse. As a wartime president he was magnificent. We were caught with our pants down, and having read both Sun Tzu and Von Clausewitz I doubt either would have found fault with him. The Doolittle Raid was cutting edge pushing the tech of the day to max and while it did little actual damage it was a blow to the Japanese belief in the Divine Wind and a moral booster in the US after the string of losses in the Pacific.
    As to the global warming nonsense there are too many variables to predict weather with beyond three days, and it is hubris to claim to be able to predict climate out decades in the future. The Greens are not some isolated prophets with no money bleating about Big Oil, when the Feds inculcate their nonsense into the children at school and hold the purse strings on research grants for the scientists, who blather on about consensus and can PROVE nothing.
    As to Greece bankrupt is bankrupt and when they bail-in the money that’s left to meet requirements for doing business, Tsipras and his merry band of Communists will probably nationalize those businesses for not being in COMPLIANCE.

    • d says:

      ” As a wartime president he was magnificent. We were caught with our pants down, and having read both Sun Tzu and Von Clausewitz I doubt either would have found fault with him. ”

      FDR wanted into the war, America didn’t.

      Freezing Japans assets wouldn’t get America into the war, however embargoing Japans oil imports, made war between Japan and America, unavoidable. Which FDR was advised of, before he did it.

      FDR knew Japan would attack America in the far east on its way to Indonesian oil.

      Washington was told by the British, and Americans, that the Japanese were coming, to pearl harbour, in the east, and when.

      FDR and the top of the Administration, sat on their hands after embargoing the oil, and let it all happen, as they needed to be attacked to get into the war. They didnt even send the important alert until after the fact, deliberately.

      Japan started the shooting war, America started the whole thing, and could have stopped, it before the Japanese started shooting.

      America fought 4 years of bitter and horrific war in the Pacific, effectively to aid China. To then fight it 5 years later in Korea.

      Then watch it turn into a 1 party mafia state, and help it steal the majority of American manufacturing industry and job’s.

      That is a huge and pointless waste of time, human lives, and resources, that in reality achieved nothing of value for America, in the time period 1941 – today

      But yes FDR was a good wartime POTUS who had good men, MacArthur, Eisenhower, Nimitz, Marshall, and many more. And most importantly, new how to let them do their job’s.

      Now America supports Japan and unless China pulls back from the nine dash line of theft. America will fight with China, in and over, the South East Asian Sea, probably only by proxy, if America is lucky.

      All said and done, would America have been better off to let the 3 that hate each other, and will until they settle their differences among them selves, the Japanese, Chinese, and Russians, rip each other to pieces and settle it 1936 – 4?

      As to greece, unless the Marxists bow to the troika, over pensions and labour reform, they and the greek banks, are dead meat walking, as ordinary greeks don’t want out of the EZ or the EU, and the Marxists privately want out, of both.

  10. Julian the Apostate says:

    Editors note: the sentence should read “…predict weather with any accuracy beyond three days…”

    • Jerry Bear says:

      You seem to be confusing weather with climate, they are quite different. Weather is a short term state that is highly chaotic and it takes a lot of doing to get it half right. Climate describes long term statistical trends and is very stable (wanna bet on a snowy day in Phoenix over the next month?) . That is why when these long term climate trends change gradually and systematically over decades it is very obvious and why all reputable scientists dealing with climate acknowledge that global warming is a reality. That global warming is happening is both obvious and factual. Why it is happening is more controversial though most go with human activities being the cause. I dont think you are being objective and rational in denying global warming, it sounds more to me like magical (i.e. wishful) thinking that you are denying it is happening at all.

  11. Stavros says:

    Still have your money in a bank in Athens or elsewhere in Greece?

    WHY??? GET IT OUT NOW!!!

  12. Julian the Apostate says:

    I do not confuse weather and climate. As with all things climate is cyclical in nature, and as I pointed out in an earlier comment we are currently at the end of an interglacial period, and if the cycles play out as usual we are more likely to have an ice age than a warming scenario, and labeling me a “denier” (read Flat Earther) will not change the facts. The East Anglia e-mails that were made public demonstrated that the data global warming is based on were falsified, therefore ipso facto global warming is a hoax. My first passion was science, the scientific method, and proof that can be replicated independently. I remember NOTHING about CONSENSUS being a requirement. I am not stupid or ignorant, Jerry Bear. I just disagree with you.
    As to FDR intentionally setting up an attack on us I simply don’t believe it. We had cracked the Japanese code and were reading their mail, and an attack was expected somewhere in the Pacific and a warning was issued to potential targets via telegram. Pearl Harbor was not known to be the target specifically and the warning telegram was delivered an hour after the attack ironically by a Japanese-American. The American people did’nt want the war; no sane person WANTS war, but denying the Japanese the oil was the moral thing to do, as was Lend-Lease. The Japanese were engaging in wholesale slaughter and Americans were already fighting them both in the Pacific and Britain. To armchair quarterback FDR’s decisions at the time strikes me as unfair. There are plenty of things to criticize Roosevelt for but IMHO the conduct of WWII is not one of them.

  13. Tonto says:

    Greetings from Finland.

    I maybe way a wrong with this but i don’t think this ancient drama has much to do with money, reforms, debt, default etc. anymore.
    I think now it’s only about principles (read stubbornness), political suicides and fear, all well connected to each other to which could be called humanity for example.

    Principles won’t let one to give up and try to find a rational solution when there might be one around. Both sides do this play well and so they should, it’s mainly a show-off for their side, for the People. It also has strong invisible strings connected to political careers and fear, all is connected.

    Troika leaders can’t give up an inch due to imminent political suicide unless they pick up (again) a magic bunny from some mystical magic hat. For the People…
    Rainmaker Tsipras et al faces the same dilemma but also they know that Greeks voted for them because they promised the miracles and because Greeks wanted the ol’ corrupted troika lickers out of the power. Now if Tsipras et al give up to Troika, they would be thrown out of Greece immediately and then who would Greeks vote? There’s no power strong enough left in Greece and any multiparty government would likely fail even worse. So there’s no go, for the People…

    And then there is the fear. Troika leaders fear like the hell for the unknown future less the things they either pretend or imagine to know about the otherwise unknown future. They fear for the Grexit as they cannot predict what actually happens and for once they even lack imagination. But for far more they fear for the possible political repercussions of the Grexit, namely Great Britain, Scotland and Catalonia.
    Tsipras et al likely fear the wrath of the Greeks, for their lives too, and mostly that they do end up to be the fellows how totally and irrevocably destroyed Greece as nation.

    For the People…

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