On a continent with no shortage of grim financial data, it takes effort to stand out. So congrats to Greek banks, which rose above—or rather, below—the pack to produce Europe’s ugliest chart:
When the Athens stock market reopened on Aug. 3 after a month’s closure, bank stocks were battered. The beleaguered lenders have lost around 60% of their value in a matter of days. That comes on top of deposit outflows of around €40 billion ($43 billion) so far this year, non-performing assets worth more than 30% of loan books, and strict capital controls that have brought business in the country to a standstill.
A senior banker in Greece doesn’t mince words about the market bloodbath, describing it as “devastation,” “decimation,” and even “complete annihilation” over the course of a short conversation. That said, the plunge reflects “nothing but the obvious,” the banker notes. “This was not a surprise.”
A key sticking point in the negotiations over Greece’s third bailout is what to do with the country’s sickly banks. The banking sector may need a recapitalization of up to €25 billion, with an exact amount to be determined by an asset review and stress test currently underway by the European Central Bank.
A round of bank recapitalizations in 2013 left the Greek state with large stakes in the country’s main banks, making it the biggest loser in the recent market meltdown, compounding the sovereign’s misery. The prospect of another huge recap is rightfully scaring off the private shareholders who still own bank stocks. After all, a bank bailout that’s rumored to be worth a multiple of the companies’ rapidly falling equity values is a recipe for dilution “into oblivion,” in the banker’s colorful words.
The investors sticking with Greek bank stocks surely know what they’re getting into by now; what’s really worrying bank executives is whether the market jitters will further dent the confidence of ordinary savers. Assuming that Athens and its creditors can agree on a new bailout deal, banks desperately need the cash that customers have squirreled “under mattresses, in safe deposit boxes, and other funny places” to return to deposit accounts, the banker says.
Since capital controls were imposed, Greeks have rushed to open online-banking and card accounts—the only ways to make domestic payments—in droves. According to banking sources, as many online and card accounts have been opened over the past month as were expected to be opened in two or three years under normal conditions in Greece’s largely cash-based economy. This is a major operational challenge for banks, but it also gives them a chance to form a more direct relationship with customers.
In a way, long-suffering shareholders are the least of Greek banks’ worries, despite the recent carnage. If you think a new bailout deal is coming, “you get the opportunity to invest at a rock-bottom price, with the chance of excessive returns given the risk,” the banker says. “It’s not what I think—it’s what investors are telling me.”
Very brave, those investors.