Oct. 14 (Bloomberg) -- Greek bondholders are preparing to lose as much as 60 percent of their investments as European leaders try to impose a solution that reduces the nation's debt burden by enough to end the debt crisis.
"Everyone is coming to the conclusion that a much deeper restructuring is needed to make Greece in any way sustainable," said Emiel van den Heiligenberg, chief investment officer of global balanced solutions at BNP Investment Partners in London, which oversees about $742 billion. "If the stock of debt doesn't diminish, then the problems are going to be bigger and bigger and Greece will require rescue package after rescue package."
Greek 10-year bonds yielded 23.93 percent at 4:40 p.m. London time, with the price on the securities at 37.48 percent of face amount. The rate was 2,172 basis points, or 21.72 percentage points, more than benchmark German bunds and compares with a yield of 11.65 percent for similar-maturity Portuguese debt and 5.79 percent for Italian bonds.
European officials are considering writedowns of as much as 50 percent on Greek bonds, a backstop for banks and continued central bank bond purchases as key planks in a revamped strategy to combat the debt crisis, people familiar with the discussions said today. Euro-region leaders are intensifying efforts to contain the crisis that broke out in Greece almost two years ago and has driven up state borrowing costs from Ireland to Italy.
Fresh Plan Standard & Poor's downgraded Spain yesterday, citing heightened risks to growth prospects. Fitch Ratings cut the long-term issuer default grades of UBS AG, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc, and said more than a dozen other lenders may have their ratings lowered. German banks are preparing for losses of as much as 60 percent on their Greek holdings, three people with knowledge of the matter, who declined to be identified because the talks are private, said yesterday. The risk is that creditors balk at forgoing more than the 21 percent initially suggested in a plan crafted in July, forcing Greece to miss debt payments and sparking a chain-reaction across the euro area's markets involving rating downgrades and payouts on credit-default swaps. Hatching a fresh plan for Greece would mean rewriting the package agreed to in July, which included a 21 percent voluntary reduction in repayments on some bonds. With a deepening recession in Greece pushing the nation further away from the July accord's debt-reduction targets, the price of two-year notes slid to as little as 36.79 percent of face value on Sept. 13, indicating dwindling faith in the nation's ability to repay investors even after the so-called haircut. Brussels Talks "A reopening of the deal is very likely," said Patrick Armstrong, managing partner at Armstrong Investment, which has about $345 million in assets under management. "In the past, they were trying to avoid Greece defaulting and avoid recapitalizing the banks and what's going to happen now will probably be more sensible. It will allow the euro zone to move forward."
The London-based fund manager owns a "small amount" of Greek 4.3 percent bonds due March 20, 2012, which it bought in July, Armstrong said. Deutsche Bank AG Chief Executive Officer Josef Ackermann, who led talks on private sector involvement in Greece's rescue package in July, said yesterday that he will go to Brussels next week to discuss the potential for investors to accept deeper losses. Luxembourg's Jean-Claude Juncker, who leads the group of euro-area finance ministers, said separately yesterday that talks are under way with the Washington-based Institute of International Finance on the cost to investors of a second bailout package for Greece. 'Larger Haircut'
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