Bloomberg News

German Banks, Government Said to Agree on Draft Greek Plan

June 30, 2011

(Updates with analyst quote in fourth paragraph. See EXT4 <GO> for more on the sovereign debt crisis.)

June 30 (Bloomberg) -- Germany’s biggest banks and insurers and the government agreed on a draft proposal to roll over Greek debt holdings before a meeting with Finance Minister Wolfgang Schaeuble today, people familiar with the plan said.

The firms will commit to providing financing for a Greek aid package, said the people, who declined to be identified because the talks are private. The draft, which may change during the meeting between Schaeuble and industry executives, left open how much debt would be rolled over and under what conditions, they said. Schaeuble will make a statement at about 3 p.m. Berlin time.

Deutsche Bank AG Chief Executive Officer Josef Ackermann, at a conference in Berlin yesterday with Chancellor Angela Merkel, predicted that financial companies would contribute to help avert a “meltdown.” German and French lenders are the biggest foreign holders of Greek debt and their participation would help the European Union meet a goal of getting banks to roll over at least 30 billion euros ($43.3 billion) of bonds.

“The banks have the most to lose if there’s another financial crisis so they don’t really have a choice but to help,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. “A contribution from the private sector is an important hurdle, along with the Greek vote, to clear the way for further aid.”

Greek Austerity

An agreement by private investors to shoulder part of the burden of a second Greek rescue is one of the remaining conditions of the EU’s plan to stave off the euro-region’s first sovereign default. Schaeuble is seeking an agreement with his country’s banks ahead of a meeting of euro area finance ministers in Brussels on July 3.

Financial institutions would “offer our hand in a solution,” Ackermann said. “Not because we’re doing it gladly, but actually to enable policymakers to do something so that we - - I’ll say it frankly -- so that we don’t have a meltdown.”

European financial shares rose for a third day on speculation Greece will avoid a default for now. The Bloomberg Europe Banks and Financial Services Index of 49 companies climbed 0.5 percent.

Greek Prime Minister George Papandreou clinched victory yesterday on a bill setting out his strategy for budget cuts, and must win a second ballot today to execute measures ranging from tax increases to asset sales. A debate on the second stage of the austerity package resumed today at 10 a.m. in Athens. No time has been given for the final vote.

Questions Remain

The German plan was drafted after working-level meetings yesterday between the financial companies and government representatives, and a French proposal is being used as a blueprint for talks, they said. Commerzbank CEO Martin Blessing, speaking in Berlin yesterday, said German financial institutions have reached a draft agreement on participation in a Greek rescue, although there are still “a few hitches.”

The German proposal may not address potential sticking points such as the maturity of the new Greek bonds, whether investors would face writedowns on their current holdings, and how rating companies would view a rollover, the people said.

French Plan

The French proposal suggested options to reinvest a proportion of the maturing bonds in either new five-year Greek debt, or new 30-year securities with repayment guarantees. Including a “significant majority” of bondholders is a condition of agreement on the arrangements, the French Banking Federation said.

The French proposal also depends on credit-rating firms not cutting Greece and existing or newly issued government securities to default, according to a draft of the plan.

Germany’s banks and insurers hold Greek sovereign debt expiring by 2014 of about 2 billion euros and 4 billion euros expiring by 2020, the people said. German firms and the Finance Ministry are discussing the idea of rolling over bonds maturing until 2020, and not just those running through 2014, as had been first envisaged, said the people.

German lenders’ total foreign claims on Greek public-sector borrowers amounted to 9.91 billion euros in March, according to Bundesbank data published on June 14. This figure excludes loans provided by KfW Group, Germany’s development bank, to Greece as part of the EU rescue package as well as holdings shifted to Germany’s bad banks.

FMS Wertmanagement, the bad bank in charge of winding down assets of Hypo Real Estate Holding AG, held 9.1 billion euros in Greek loans and bonds at the end of last year, with sovereign debt representing 7.4 billion euros, it said in May. WestLB AG’s Erste Abwicklungsanstalt holds 1.1 billion euros of Greek government debt, it said on June 6.

--With assistance Rainer Buergin and Patrick Donahue in Berlin. Editors: Frank Connelly, Stephen Taylor

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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