The last few nails in the coffin are being driven in by the German-led Troika and soon Greece will be in 100% vassal state mode.
Earlier today, tucked away from the public’s eyes, there was another round of drama involving Greek securities this time focused on Greek senior bank bonds which promptly tumbled back to post-referendum/pre-bailout #3 levels.
The catalyst was Friday’s pronouncement by Jeroen Dijsselbloem who said depositors will be shielded from any losses resulting from the restructuring of the nation’s financial system, but that senior bondholders would certainly be impaired and probably wiped out. In other words, once again the super priority of various classes has been flipped on its head with general unsecured liabilities ending up senior to, well, senior bank claims.
As Bloomberg reported earlier today, while “Greece’s third bailout will spare depositors in any restructuring of the nation’s financial system, senior bank bondholders may not be so lucky, according to comments from Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem. The bondholders will be in line for losses if Greek lenders tap into any of the financial stability funds set aside in the new bailout.”
“Bondholders were overly optimistic because bail-in of senior bonds was not explicitly mentioned before,” said Robert Montague, a senior analyst at ECM Asset Management in London. “Today they were brought back down to earth with a bump.”
Which is bad news for bondholders, but the biggest losers will once again be depositors who represent the vast bulk of unsecured Greek bank liabilities.
Going back to Friday’s statement by the Eurogroup president, he specifically said that “the bail-in instrument will apply for senior bondholders, whereas the bail-in of depositors is explicitly excluded.” Which is confusing considering that bank stocks were broadly unchanged and in some cases rose. Of course, this makes no sense because as even a first year restructuring associate will tell you, according to traditional waterfall analysis, even the lowliest bond impairment means an equity wipeout. And yet, Greek bank equities are still trading at far more than just tip/nuisance value. Which, to repeat, makes no sense.
But that is not surprising: little of what Europe is doing with Greece makes any sense. Other agree:
“It is not clear how they will make it possible to bail-in bonds while excluding deposits, but as we have seen in other problematic situations, where there is a will there will be a way,” said Olly Burrows, London-based financials analyst at brokerage firm CRT Capital. “We call Dijsselbloem’s solution a bail-up: part bail-out, part bail-in and part cock-up.”
And yet, it appears that following the weekend, Europe realized that it is now openly flaunting the conventional restructuring protocol.
Full article: Greek Deposits Become Eligible For Bail-In On January 1, 2016 (Zero Hedge)