Greek creditors go back to basics on debt plan

PARIS/LONDON Wed Jul 6, 2011 6:32pm BST

A woman makes a transaction at an automated teller machine (ATM) outside a bank branch in Athens, July 6, 2011. REUTERS/John Kolesidis

A woman makes a transaction at an automated teller machine (ATM) outside a bank branch in Athens, July 6, 2011.

Credit: Reuters/John Kolesidis

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PARIS/LONDON (Reuters) - Greece's creditors have gone back to the drawing board in an attempt to thrash out a rollover plan for the country's debts at a meeting held in Paris on Wednesday.

The talks aimed at providing a private sector answer to European Union demands for banks, insurers and other creditors to share in the burden of a rollover were further complicated by a credit rating downgrade for Portugal.

The head of the Institute of International Finance (IIF) lobby group, which led the meeting, said it had been "productive," adding participants had discussed a range of options that could be attractive to different investors,

"We are looking at a menu of options to help Greece. We did not spend a great deal of time today trying to refine any particular option," IIF Managing Director Charles Dallara told Reuters in a telephone interview after the meeting.

"It was more of a step back to look at the thrust of proposals."

Dallara said among the options being considered are debt buybacks that could provide longer-term sustainable help, in addition to measures such as a debt rollover plan that would help short-term financing needs.

Creditors are attempting to fine-tune a voluntary private-sector creditors' deal for Greece that can get past credit rating agencies without it being termed a default.

The IIF chaired Wednesday's meeting, held at the headquarters of BNP Paribas (BNPP.PA), France's biggest bank and one of the biggest holders of Greek debt.

Banking industry sources said finding a solution will take some time, and there is concern the private sector will fail to come up with a fix or raise the 30 billion euros ($44 billion) being sought.

"A deal can't happen without the agreement of the troika which is dealing with this issue on behalf of the Greeks (the EU, IMF and ECB), the Greek government and all the bondholders who are affected by this issue," BNP Chairman Michel Pebereau said.

He also said it was important to distinguish between the Greek debt issue and similar crises that are roiling Portugal as well as Ireland.

Banks in France, Spain and Germany are the biggest holders of Portuguese government bonds, with lenders in each country holding about $8 billion (5 billion pounds) of bonds at the end of last year.

The IIF's Dallara said Wednesday's talks focussed on Greece, and the banks did not consider Portugal's problems to be "anywhere near" those facing Greece.

But the risk that Greece's problems will spread mounted after ratings agency Moody's on Tuesday cut Portugal's credit rating to junk and warned it might need a second round of rescue funds before returning to capital markets.

The Stoxx 600 Europe banking sector share index .SX7P fell 1.7 percent, with banks in peripheral euro zone countries performing worst.

Portugal's Millennium bcp (BCP.LS) tumbled 6.9 percent, and Banco BPI (BBPI.LS) dropped 6 percent.

Italy's UniCredit (CRDI.MI) fell 7.1 percent, Intesa Sanpaolo (ISP.MI) and France's Credit Agricole (CAGR.PA) both fell over 4 percent, and Spain's Santander (SAN.MC) and BBVA (BBVA.MC), France's Societe Generale (SOGN.PA) and Britain's Barclays (BARC.L) all lost over 2 percent.

French banks have proposed voluntarily renewing Greek bonds when they fall due. Bondholders would reinvest at least 70 percent of the proceeds from bonds maturing between now and the end of 2014 in new 30-year Greek debt.

The Financial Times said a new proposal -- sweetened to be more attractive to Greece -- would be presented, offering to lower the interest rate and raise the proportion of debt targeted for rollover in the French plan.

The IIF, which represents more than 400 financial firms, last week said it supported proposals to aid Greece, and said more meetings will be held.

The cut to Portugal's rating adds to the prospect of sluggish economic growth in the next few years, meaning the country will struggle to get its debt under control and require creditors to take a hit on their holdings.

Economists at Citi last week said the debt burdens of Greece, and probably Ireland and Portugal, will look unsustainable by 2014, and restructurings with haircuts to the debt principal will be necessary.

Overseas banks have more than $200 billion of exposure to Portugal, including $34.6 billion of government debt, according to the Bank for International Settlements, which provides the only cross-border bank lending data.

Spanish banks held $8.5 billion of Portuguese sovereign bonds at the end of December, French banks had $8.2 billion and German banks had $7.8 billion, the data showed.

(Additional reporting by Jean-Michel Belot in Paris, Sonya Dowsett and Jesus Aguado in Madrid; Editing by Will Waterman and Greg Mahlich)

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