Bonds of Greek banks recorded a sharp drop on Monday after the group of eurozone finance ministers announced that deposits will be protected from losses in the implementation of the new rescue package for the country, which is worth 86 bn. Euros. This does not apply to senior lenders who will likely suffer losses.
Protection for depositors
Late last week the president of the Eurogroup and the finance minister of the Netherlands Jeroen Deyselblum said depositors in Greek banks will be protected from any losses in the process of restructuring the financial system. This decision puts the senior bondholders of banks increased risk of losses if the financial institutions benefit from the resources in some of the special funds that will be created as part of the new program.
“The tools to rescue banks will refer to senior bondholders, while the use of depositors’ funds for this purpose is explicitly excluded” said Deyselblum, quoted by Bloomberg. His comments indicate that it will apply EU rules providing for private investors to share the cost of stabilizing the troubled banks.
Senior unsecured bonds Eurobank Ergasias with an interest rate of 4.25% and maturing in June 2018 decreased by 33% to 37 cents per euro on Monday. Senior bonds to Piraeus Bank with an interest rate of 5% and maturing in March 2017 depreciated by 27% to 38 cents per euro. Bonds of Alpha Bank with an interest rate of 3.375% and maturing in June 2017 in turn marked a decrease of 15 percent to 58 cents per euro.