Several large banks, with Deutsche Bank (NYSE: DB) in the lead, are prepared to kill a bailout of Greece. Well-known DB chief Josef Ackermann says new plans to have banks take a greater burden of the aid package would cripple the industry just as it is needed most as a pillar of stability in the region. Banks hold enough Greek sovereign paper that they could end rescue efforts completely.
The problems with the attempts to save Greece have seesawed back and forth between those nations that will have to fund much of the new loans to the southern European country and financial firms that have been asked to take write-offs on old loans. The trouble becomes more complex because banks may have to be bailed out themselves if their balance sheets are hurt badly enough by the latest proposed Greek bailout.
The major difference between banks and sovereign lenders and the IMF is obvious. But it is worth repeating. Bank boards and shareholders are not beholden to interests that would sustain the eurozone’s existence. The boards of these financial firms may risk severe regional financial problems, which include contagion, to keep themselves from the kind of catastrophe that American banks had in the 2008 credit crisis. There is no TARP-like facility in place in the EU yet, and there may never be one.
EU banks agreed to a contribution to the bailout in July. They are now being asked to increase that contribution. These firms had the agreement of most of their investors to accept the financial damage of the first deal. A harsher agreement almost certainly will be turned down as one that would tear balance sheets apart and send banks in a rush to find more capital.
Until recently, it was the confused debate among countries like Germany and France about how much each was able to put into a new rescue fund. The banks are about to walk away just as those debates have ended in agreement to salvage Greece.
Douglas A. McIntyre