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Greek Debt Crisis

Key French bank slashes its Greek debt

John Dimsdale Feb 15, 2012

Kai Ryssdal: We got a glimpse today of what Greece’s economic problems might mean for the private banks that hold much of the $450 billion that Athens owes. The answer is it might not mean much.

This morning, BNP Paribas — the biggest bank in France and also, as it happens, one of the lenders trying to work out a deal with Athens — reported that its profits fell by more than half last quarter. The hit came in large part because BNP had sliced 75 percent off the value of the Greek debt it owns: the bonds.

Markets pretty much took that in stride, surprisingly enough. So we asked Marketplace’s John Dimsdale to see if there’s a lesson in there somewhere.

John Dimsdale: Private banks and hedge funds that own Greek debt have known for some time they’re not going to get all their money back.

The president of Greylock Capital, Hans Humes, sits on the committee that’s negotiating a deal between private debt holders and Greece. He says right now they’ve proposed that Greece pay them 50 cents on the dollar. He calls BNP Paribas’ decision to write down even more than that prudent.

Hans Humes:  I think 75 percent is a good proactive conservative approach for a large European financial institution to take. They could easily get some recovery beyond that.

European markets seemed to agree, as bank stocks jumped today on the BNP Paribas news. The French bank is a key player in the Greek debt talks.

But David Blanchflower, a former Bank of England official, questions whether a 75 percent writedown is enough.

David Blanchflower: The reality is there is no growth in Greece. GDP fell by 7 percent the last year. There is no possible way the Greek economy can pay any of this stuff back.

Plus, he’s concerned about possible debt defaults in other European nations.

Blanchflower: The question is: Could you even stop it at Portugal? Very closely behind it is Spain and Italy. Could you stop it at Greece, could you prevent it from even going as far as France?

For the moment though, investors feel France’s biggest bank is taking the right steps to protect itself from Europe’s debt crisis.

In Washington, I’m John Dimsdale for Marketplace.

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