Banks are working with European governments to consider the accounting impact of a Greek debt restructuring but a solution has yet to be found for Greece, Deutsche Bank AG (DB) Chief Executive Josef Ackermann told a conference organized by Reuters Monday. According to Reuters, Ackermann also warned that if contagion spreads the crisis could be bigger than the one caused by Lehman's collapse a few years ago.
Banks are prepared to play a constructive role in finding a solution for Greece but it remains uncertain if a good plan can be found that will suit everybody, Ackermann said. He said imbalances that had built up in Greece over 20 years can't be fixed in a matter of months. He noted that French banks have presented a plan but that others are also being considered, Reuters reported.
Ackermann's comments coincide with a Rome meeting of a group of bankers from around the world to discuss the Greek debt crisis with Charles Dallara, managing director of the Institute of International Finance, and Vittorio Grilli, the chairman of the euro zone's Economic and Finance Committee, people familiar with the situation said.
Earlier Monday, the German government held a conference call with German banks to discuss their possible involvement in a rescue package for Greece that includes the private sector, according to other people familiar with the matter. German banks and insurers had to report their Greek exposure to the German government by Sunday.
Ackermann described the situation in Greece as very critical, saying that the private sector wasn't prepared to "throw good money after bad."He also warned against rushing a deal on private sector involvement in a second Greek rescue package.
Political leaders expect a private sector deal for Greece by the end of this week, Ackermann said, adding that it was important to have a good solution, that the issues were complex and needed to be discussed.
There isn't enough focus on investments and creating jobs in Greece, Ackermann said, adding that it would be better to have some bleeding than a complete meltdown.
Before investors give up on Greece, the country must be given a chance to exhaust other options such as boosting tax collection and the sale of privatized assets, Ackermann said, according to Reuters.
Greece's budget deficit needs to stabilize prior to considering any other options, Ackermann said. A solution involving private sector banks should consider them taking equity stakes as part of a bail-in solution, Ackermann said.
He said that looking at Greek sovereign risk is too narrow and that implications from credit default swaps used to hedge exposure should also be considered. He criticized the lack of transparency, saying it isn't known whether the CDS risk for Greece of around EUR5 billion is evenly distributed.
Ackermann also warned that the cumulative impact of new capital requirements for banks will create a burden for the entire sector, adding that he would support the creation of a European ratings agency. Over the weekend, the Basel Committee on Banking Supervision proposed enhanced capital requirements for global systemically important banks, or Sifis.
Banks considered systemically important will be required to hold an additional Tier 1 common equity capital buffer of between 1% and 2.5% of risk-weighted assets, in addition to the 7% in Tier 1 common equity that all banks should hold under Basel III rules. The Basel Committee also said that the top Sifis would face an additional 1% surcharge if they were to "increase materially their global systemic importance" in the future.
The new capital rules will make investment banking more challenging, and banks will face a 'new normal' of lower profitability and higher regulatory costs, Ackermann said. The banking sector's profitability will dip in the short run with pretax returns on equity in the area of 16% to 19% before rebounding to 25% later, he said.
He said Deutsche Bank will likely get into the top category for systemically important financial institutions, or Sifis, and that liquidity is a key issue in the current environment. However, Sifis will have lower refinancing costs and non-Sifis will be required to adjust their capital to compete, Ackermann said.
0 comments:
Post a Comment