Bloomberg News

Germany, France Begin Talks With Banks on Greek Rollover

June 22, 2011

(Updates with investor’s comments in fourth paragraph.)

June 22 (Bloomberg) -- Germany, France and the Netherlands have begun talks with banks and insurers on getting private investors to participate in a Greek rescue.

A meeting between German Finance Ministry officials and representatives of companies including Deutsche Bank AG was set for this afternoon in Frankfurt, said people with knowledge of the matter who declined to be identified. A French official said details of a Greek debt rollover package will be completed by a July 3 meeting of European finance ministers.

German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed last week to pursue a Vienna-style solution for Greece, encouraging creditors to roll over expiring bonds to buy time until the country’s austerity program shows results or a permanent rescue fund kicks in from mid-2013. Questions remain about what incentives banks might demand to participate in a rollover, and how such an agreement would work without prompting ratings companies to declare a default.

“It’s a prisoner’s dilemma,” said Corne van Zeijl, a Den Bosch, Netherlands-based portfolio manager at SNS Asset Management who oversees about 1.1 billion euros ($1.6 billion). “If you could be certain everyone will participate, agreeing on cooperating is no problem. But if some parties don’t agree, there’s no point for you in saying ‘yes.’”

Merkel said June 17 that she’ll work with the European Central Bank to seek a voluntary contribution from bondholders in a second Greek rescue. Germany’s state-owned and private banks said earlier this week that they want incentives to encourage investors to participate in an effort to reduce Greece’s debt.

The Vienna initiative encouraged western European banks to keep funding their units in eastern Europe during the financial crisis in 2009, while maintaining lending at the same level. A rollover involves reinvesting the proceeds from maturing bonds in new securities.

‘Quantifiable’ Contribution

Deutsche Bank, Commerzbank AG, DZ Bank, HVB Group, WestLB AG, Landesbank Baden-Wuerttemberg, WGZ Bank, DekaBank Deutsche Girozentrale, HSH Nordbank AG, Allianz SE and Munich Re are among the companies invited to the talks, according to the people. Spokespeople for the banks and insurers either declined to comment or couldn’t immediately be reached by phone.

The talks, reported earlier today by Reuters, are exploratory and no concrete results are expected, the people familiar with the discussions said.

Germany is pursuing discussions with private industry on encouraging banks and insurers to participate on a voluntary basis in a second Greece bailout, and a “target date is July 3,” the finance ministry said, declining to comment on today’s meeting.

“One is trying at the national and international level to get into talks with the private sector in order to make the voluntary contribution by the private sector quantifiable,” ministry spokesman Martin Kotthaus told reporters in Berlin today.

Dutch Talks

France held meetings with financial industry executives today. The Netherlands has also initiated discussions with the country’s financial industry on a voluntary rollover of outstanding Greek debt, a person familiar with the situation said today.

Dutch Finance Minister Jan Kees de Jager told reporters on June 19 that ministers meeting in Luxembourg would discuss incentives for bondholders to roll over their investments in Greece.

Government guarantees for new Greek bonds used to replace maturing debt would be one option to encourage debtholders to voluntarily participate, the Association of German Banks and the VOeB association, which represents public-sector lenders, said earlier this week.

Offering a guarantee or collateral for Greek bonds issued to replace maturing debt may be a viable way of including bondholders in a second bailout for the nation, Nomura International Plc analysts said this week.

--With assistance from Rainer Buergin and Alan Crawford in Berlin and Gregory Viscusi and Helene Fouquet in Paris. Editors: Frank Connelly, Edward Evans

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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