Shares in Greek banks plunged, dragging down the entire Greek stock market on Monday on new tensions over recapitalisation of Greek banks and delays to quarterly results.
The Greek banking sub index plummeted 13.59 percent over unresolved recapitalisation, tied to last-minute efforts to complete conditions for new debt funding to avert bankruptcy for Greece.
And the main market index was showing a fall of 5.88 percent in afternoon trading after the finance ministry said that Greek banks would not be able to swap their holdings of national debt.
The ministry also said that results for the banks for the second quarter of this year would be delayed by a month until November 30 because of delays in recapitalisation.
The ministry made its announcement shortly after a meeting between Finance Minister Yannis Stournaras and the Greek banking federation on Monday to discuss the urgent plight of the banks.
The ministry said that at the meeting, the possibility that Greek banks could swap their greatly devalued Greek bonds for bonds issued by the new European Stability Mechanism “was ruled out”.
Stock market dealers said that this caused banks share to plunge, dragging down the entire Athens stock index.
Greece hopes to help recapitalise its banks, hard hit by the national debt, deep recession and flight of capital, with money from the next instalment of rescue funds from the IMF and EU, which still hangs on completion of new reforms.
The critical matter of recapitalising the Greek banks, being kept going with various forms of funding on especially easy terms from the European Central Bank, is far behind schedule.
Recapitalisation hangs on completion of the latest audit and agreement on extra budget action and reforms between Greece and the International Monetary Fund, European Union and ECB. Without payment of the next instalment, Greece faces bankruptcy next month.
The banks took a body blow when Greek debt was restructured under the latest rescue arrangements which forced private holders of Greek debt to take a big loss on the money owed.
Stournaras and Georges Zanias, head of the Union of Greek Banks, met to work out details of how to help institutions hit by the write down of more than 100 billion euros ($130 billion) in privately held government debt in March.
The European Union’s temporary rescue fund has earmarked around 50 billion euros for the task, and much of an EU-IMF lifeline worth another 31.5 billion is also expected to help banks restore solid balance sheets so they can provide more support to the wider Greek economy.
Greece, which has been in recession for five years, must set its financial sector back on its feet to underpin economic growth as the government enacts austerity measures worth 13.5 billion euros that have been demanded by creditors in exchange for their aid.
The German magazine Spiegel reported on Sunday that international auditors, including some from the European Central Bank, would demand that Greece carry out another 150 reforms to its economy, and suggest that holders of Greek debt, often the banks, accept further losses.
Citing an interim version of the findings of the so-called troika of creditors, Spiegel said that Athens would be allowed two more years to carry out the reforms in its programme but that this delay would cost billions of euros.
Greece has completed 60 percent of the reforms already demanded of it, the report says, according to Spiegel. Another 20 percent are being debated by the Greek government, while the rest are outstanding.
Talks between the Greek government and creditors have reportedly stalled on demands for more flexibility in its labour market, a position that is opposed by the left-of-centre Dimar party, one of three parties that comprise a Greek coalition led by Prime Minister Antonis Samaras.
Greek bank shares plunge on recapitalisation
