Bloomberg News

German Banks Said to Meet in Berlin on Greece Debt Rollover

June 28, 2011

(Updates with comment from HSBC’s Gulliver in sixth paragraph. See EXT4 <GO> for more on sovereign debt crisis.)

June 28 (Bloomberg) -- German banks and insurers will use a French proposal as a blueprint for discussion when they meet with finance ministry officials in Berlin tomorrow to seek an agreement on their role in a Greek rescue, two people with knowledge of the matter said.

The working-level talks will focus on possible adjustments to the French banks’ plan to roll over a portion of maturing bonds to help prevent a Greek default, said the people, who declined to be identified because the talks are private. Germany’s banking associations agreed with government officials today to pursue such a model, one of the people said.

The talks are part of Europe-wide efforts to get creditors to share the burden of a second Greek bailout and prevent the euro-region’s first default, a year after a 110 billion-euro ($157 billion) package failed to stop the debt crisis from spreading. German and French lenders are the biggest foreign holders of Greek debt and their participation is key to the European Union goal of getting banks to roll over at least 30 billion euros of bonds.

“The ingredients of the French model are highly likely what will come out of this,” Charles Dallara, managing director of the Institute of International Finance, told reporters in Istanbul today. The IIF represents more than 400 of the world’s biggest financial firms globally.

Gulliver, Trichet

Dallara held discussions on Greece in Rome yesterday with banking executives, representatives of the European Central Bank and Vittorio Grilli, Italy’s director general of the Treasury and head of the European Union’s Economic and Finance Committee.

In Britain, HSBC Holdings Plc Chief Executive Officer Stuart Gulliver said the bank and other lenders are involved in discussions led by the IIF. Among those in talks, “there appears to be an emerging consensus that agreement is a week or two away,” the CEO said in London today.

European Central Bank President Jean-Claude Trichet said in Amsterdam today that the rollover plan put forward by the French is one of “several proposals being examined,” and that it’s a matter for discussion by governments. The ECB has urged the EU to avoid any plan that would lead to a Greek default.

Under the French plan, investors would agree to roll over 50 percent of their Greek government bond holdings maturing by the middle of 2014 into new 30-year debt, according to a draft obtained by Bloomberg News. The banks would invest another 20 percent of the redemptions in AAA-rated zero-coupon securities to serve as collateral in case of a default.

Maturing Debt

Banks that roll over their debt under the French plan would receive 30-year bonds with a coupon of about 5.5 percent, which could be increased by as much as 2.5 percent based on the pace of Greek economic growth, the people said.

In a second option, investors would reinvest at least 90 percent of their redemptions into five-year Greek government debt with a coupon of 5.5 percent, according to the proposal.

The plan depends upon credit-rating firms not cutting their grade on Greece and existing or newly issued government securities to default, according to the draft. A Paris-based spokeswoman at the French Banking Federation declined to comment on the three-page report when contacted by Bloomberg.

European banks hold 17.2 billion euros of Greek bonds maturing by the end of 2013, Citigroup Inc. estimated in a June 23 report. Greek banks hold almost 22 billion euros of bonds coming due in that period, and the country’s central bank owned 5.1 billion euros of debt likely eligible for the rollover, Citigroup estimated.

‘Restricted Default’

Fitch Ratings threatened to deem Greece in default if the EU goes ahead with a plan to get private investors to roll over their Greek bonds as part of an aid package for Europe’s most- indebted nation, it said separately today.

“Fitch would very likely view such a scenario as a sovereign-default event and place the Greek sovereign rating into restricted default,” David Riley, Fitch’s London-based head of sovereign ratings, wrote in a letter in the Financial Times today. Riley said too much attention is being focused on trying to avoid a default rating.

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

--With assistance from Sonia Sirletti in Parma, Italy, Andrew Davis in Rome, Ercan Ersoy in Istanbul, Jurjen Van De Pol in Amsterdam, Howard Mustoe in London and Rainer Buergin in Berlin. Editors: Stephen Taylor, Frank Connelly

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at

To contact the editors responsible for this story: Frank Connelly at; Edward Evans at

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