Thursday, July 7, 2011

Greece bailout effort continues to make the case for current asset-level disclosure

The Wall Street Journal ran an article on how the sale by banks of their Greek-government bond holdings to investors has complicated the bailout efforts.

At a minimum, this highlights the importance of current asset-level disclosure.  With disclosure, it would be easy to see what each bank's exposure to Greek government bonds is.
Europe's hopes for a significant contribution by private bondholders to a new bailout for Greece are fading, as it becomes clear that banks have sold off a substantial proportion of their Greek government-bond holdings despite pledges by some of the institutions not to do so. 
... The problem is that the banks and insurers at the negotiating table no longer hold as much of the debt maturing through 2014 as they did a year ago. 
In May of last year, German banks and insurers made a nonbinding pledge to maintain about €8 billion in Greek debt and loans for three years. Yet the current Greek debt holdings of those institutions suggests they have sold some of their holdings anyway. 
There isn't detailed information on how much Greek debt German and other European financial institutions may have jettisoned. Allianz SE, the German insurer, has said it holds €1.3 billion in Greek bonds, compared with €3.3 billion last year. The company has said it would be willing to roll over about €300 million under the current proposal. 
In an interview with Der Spiegel, the German weekly, Chief Executive Officer Michael Diekmann said Allianz had fulfilled its commitment under last year's pledge not to sell into "a falling market." He also said that the insurer had agreed not to sell only for as long as it made "economic sense." 
Analysts said banks were likely to have sold off short-term Greek debt because it trades at a smaller discount to face value than does longer-term debt. Meanwhile, hedge funds and other investors, who are likely to have bought up the paper, are less likely to be persuaded to engage in the debt rollovers being proposed by euro-zone governments.  

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