Bloomberg News

German Banks, Insurers Agree With Schaeuble on Greek Aid

June 30, 2011

(Updates with comments from Schaeuble and Ackermann from seventh paragraph. See EXT4 <GO> for more on the sovereign debt crisis.)

June 30 (Bloomberg) -- Deutsche Bank AG and Allianz SE, Germany’s biggest bank and insurer, were among the nation’s financial firms that agreed to reinvest in Greek debt to help avoid the euro area’s first default.

German banks and insurers agreed to roll over at least 2 billion euros ($2.9 billion) from Greek bonds maturing through 2014, Finance Minister Wolfgang Schaeuble said at a press conference in Berlin today. The country’s so-called bad banks will provide an additional 1.2 billion euros, he said.

German Chancellor Angela Merkel and Schaeuble had insisted that private investors shoulder part of the burden of a second Greek rescue to help relieve the cost to taxpayers. Deutsche Bank Chief Executive Officer Josef Ackermann, speaking beside Schaeuble today, called the contribution by banks and insurers voluntary and substantial, a day after saying private industry would help to avert a “meltdown.”

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

European banking 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 jumped 1.9 percent.

Greek Vote

Greek Prime Minister George Papandreou won approval of a second bill to authorize a 78 billion-euro package of budget cuts and asset sales that was a condition of receiving further European Union aid. Those steps were approved in a vote yesterday that was marred by street violence.

Schaeuble met with top finance industry executives today to seek an agreement on a debt rollover before a gathering of euro- area finance ministers in Brussels on July 3. The announcement failed to provide specific information on the maturity or coupon of the new Greek debt the banks will purchase, or how the transaction will be structured or guaranteed.

The rollover involves taking money from expiring debt and reinvesting it into new bonds with longer maturities.

“It’s decisive that we win the participation” of private industry, Schaeuble said. “The preparations are proceeding intensively these days and I’m confident that we’ll have a solution on Sunday.”

In May 2010, Ackermann and Schaeuble led a similar effort by German financial companies to provide 8.1 billion euros in financing to support debt-stricken Greece at the time of the 110 billion-euro bailout by the EU and International Monetary Fund.

Deal by ‘Sunday’

German and French lenders are the biggest foreign holders of Greek debt and their participation may help the European Union meet a goal of getting banks to roll over at least 30 billion euros of bonds. Ackermann said today that a French proposal is being used as a blueprint for the German contribution, though adjustments will be made.

“We have worked together intensely in past days and weeks, also at a European level with other banking associations, to work toward a solution which I think meets all requirements, is voluntary and at the same time substantial,” said Ackermann, 63. “While we aren’t quite there with the design and final details, we’ll continue working today and tomorrow and are confident that within the framework of the global banking association we’ll be able to provide a quantifiable and sustainable solution by Sunday.”

French Proposal

The financial companies’ total holdings of Greek sovereign debt amount to almost 10 billion euros, with about 55 percent maturing after 2020, according to a statement given to reporters today.

“At least for the 2 billion euros in bonds maturing through 2014, each participating institute will make the same amount available again within the economic and legal possibilities and the European financing structures that have yet to be decided,” the statement said.

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.

Allianz, Germany’s biggest insurer, will contribute toward a rescue package for Greece, spokeswoman Stefanie Rupp- Menedetter said by phone. She said the aid package will give Greece the time to return to capital markets and will contribute to stabilizing markets and the euro.

--Editors: Frank Connelly, Steve Bailey

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net Patrick Donahue at pdonahue1@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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