Report: Greek Bondholders – Banks and Insurers

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Banks are set to lose almost three-quarters of the value of their Greek government bonds under a deal agreed early on Tuesday, slightly more than they had planned, people familiar with the matter said.

Investors had previously expected to suffer a 70 percent hit, so BNP Paribas, insurer Allianz, hedge fund Greylock and other bondholders face an extra collective hit of up to €8 billion [$10.6 billion].

Gary Jenkins, analyst at Swordfish Research, said it was not a surprise to see the private sector squeezed more as politicians struggled to fill Greece’s funding gap, as a disorderly default could have seen them left with nothing.

“Both parties knew that the ultimate recovery for private sector investors is potentially zero,” Jenkins said.

Euro zone finance ministers sealed the €130 billion [$172.38 billion] bailout for Greece after another marathon session, saying the plan will cut debt to 120.5 percent of gross domestic product by 2020.

There was a muted market reaction. By 0950 GMT the European bank shares index was down 0.4 percent at 159.4 points.

Private investors will swap their existing debt into new bonds with a maturity of up to 30 years.

The deal will write off €107 billion [$142 billion] of debt, and interest payments will be just 2 percent for the first three years, and average 3.65 percent over the 30 years.

The new bonds will be launched in the next week, and Greece said it will pass legislation to enforce losses on bondholders who balk at the new terms.

Private sector creditors agreed to increase their nominal loss on the bonds to 53.5 percent in a deal to put Greece’s debt on a sustainable footing, but said only that the net present value (NPV) loss would be over 70 percent.

The NPV loss is the real loss suffered by investors, taking into account factors such as future interest rates.

Two people familiar with the matter said the NPV loss for private sector investors would be 73 to 74 percent on the deal, while a third said it would be 74 percent.

Creditors had previously agreed to a 50 percent nominal write down, which equated to around a 70 percent NPV loss.