European Banks Take Greek Hit After Deal

Royal Bank of Scotland Group Plc, Commerzbank AG (CBK) of Germany and France’s Credit Agricole SA booked losses on their Greek government debt two days after creditors agreed to the biggest sovereign restructuring in history.
RBS, Britain’s biggest government-owned lender, posted a wider-than-expected full-year loss after taking a sovereign-debt impairment of 1.1 billion pounds ($1.7 billion). Commerzbank, Germany’s second-biggest lender, booked a 700 million-euro ($1.1 billion) writedown on Greek debt in the fourth quarter. Credit Agricole, France’s third-largest bank, reported a quarterly loss after 220 million euros in impairments on Greek debt.
Dexia SA and Allianz SE (ALV) also announced Greek writedowns today. The nation’s private creditors agreed to a debt swap on Feb. 21, paving the way for a second bailout and averting what Deutsche Bank AG Chief Executive Officer Josef Ackermann said would have been a “meltdown” worse than the collapse of Lehman Brothers Holdings Inc.
“Earnings were hit by Greek writedowns, but at least the worst is now behind us,” said Lutz Roehmeyer, who helps oversee about 11.5 billion euros at Landesbank Berlin Investment in Germany’s capital. “By aggressively writing down their holdings, banks want to show that they can cope even if Greece defaults down the road.”
RBS, Commerzbank and Credit Agricole (ACA) have all written down their Greek debt by at least 74 percent, in line with estimated losses in the securities’ net present value from the swap.

Debt Swap

The banks’ share performance was mixed as investors gauged whether the worst of the sovereign-debt crisis, writedowns and capital-raising to boost financial cushions were over.
RBS shares jumped 4.8 percent to 28.63 pence as of 12:06 p.m. in London on optimism that Chief Executive Officer Stephen Hester has completed the worst of the writedowns and as demand recovered at its U.S. business.
Commerzbank slid 4.6 percent to 1.98 euros in Frankfurt as the German lender unveiled a plan to increase core Tier 1 capital by more than 1 billion euros by buying back hybrid instruments with new shares.
Credit Agricole, which controls Emporiki Bank of Greece SA, declined 3.7 percent to 4.83 euros. The bank said it can’t commit to any target to stem Emporiki’s losses.

Allianz, Dexia

Allianz (ALV), Europe’s biggest insurer, posted fourth-quarter earnings that missed estimates as the Munich-based company booked 1.9 billion euros of non-operating impairments on Greek sovereign debt and investments, particularly in financials, for the year.
The insurer wrote down its Greek bonds to market values at the end of 2011, representing 24.7 percent of their nominal value. Shares of Allianz were up 0.8 percent to 90.57 euros.
Dexia, the Belgian lender being broken up, reported a record loss of 11.6 billion euros today. Its writedowns on Greek sovereign debt totaled 3.61 billion euros last year, including 1.25 billion euros of impairments taken by its former Belgian bank unit before it was sold on Oct. 20. In addition, Dexia (DEXB) wrote down an additional 1.01 billion euros on derivative contracts tied to the Greek debt.
Dexia shares fell 5 percent to 29.2 euro cents.

Debt Forgiveness

Europe’s largest lenders and insurers are likely to accede to the Greek swap because they’ve already written down their sovereign holdings and want to avert the risk of a default, analysts said earlier this week. The success of the swap depends on how many investors participate in the transaction.
Under the deal, investors will forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility. The plan seeks to reduce Greece’s debt burden by 107 billion euros, the Institute of International Finance, which led negotiations, said earlier this week. The swap is meant to help reduce the country’s debt to 120.5 percent of gross domestic product by 2020.
RBS reported a net loss for 2011 of 2 billion pounds compared with a deficit of 1.1 billion pounds a year earlier. That was worse than the 1.1 billion-pound median estimate of 11 analysts surveyed by Bloomberg.
Credit Agricole, based outside Paris, reported a fourth- quarter net loss of 3.07 billion euros, wider than analysts’ estimates. Chief Executive Officer Jean-Paul Chifflet set aside money at the lender’s Greek consumer-banking network and booked about 2.6 billion euros in writedowns on investments including its stake in Spain’s Bankinter SA and Banco Espirito Santo SA of Portugal in the quarter.
Commerzbank said full-year profit slid to 638 million euros from 1.43 billion euros.