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EU watchdog says banks too coy on Greek debt
July 26, 2012 / 1:09 PM / 5 years ago

EU watchdog says banks too coy on Greek debt

* Banks’ disclosures to investors too patchy

* Banks must say why won’t write down pressured debt

* ESMA to study 2012 bank reports for improvements

By Huw Jones

LONDON, July 26 (Reuters) - The European Union’s market regulator on Thursday criticised banks for painting an incomplete picture of their Greek debt holdings last year when they and the Greek government were negotiating a big writedown on the country’s bonds.

With the banking sector still shunned by investors and struggling to restore confidence after a slew of government bailouts, the watchdog also faulted banks for giving the media and analysts key information on Greek exposures which they omitted from annual reports.

The report from the European Securities and Markets Authority (ESMA) looked at how 42 financial institutions accounted at the end of 2011 for their combined 80 billion euros of Greek debt.

“ESMA is of the opinion that greater emphasis should be put in the financial statements on the reasons why exposures under close scrutiny from the markets are, or are not, impaired,” the watchdog said.

Euro zone leaders agreed in late 2011 to write down the value of private sector holdings of Greek sovereign debt as part of a second bailout. There was a deal with banks in early 2012 to write down the debt by 74 percent.

ESMA said banks surveyed all agreed that Greek debt was impaired last year, meaning its value should be written down and a charge taken, but what they told investors varied greatly.

Few banks enabled investors to make a yearly comparison to assess the real impact of Greek debt on their performance.

The regulator began studying Greek debt disclosures by banks after International Accounting Standards Board’s Chairman Hans Hoogervorst complained in August 2011 that some lenders were not booking big enough losses. IASB accounting rules are mandatory in the EU.

French banks like BNP Paribas were accused at the time of not fully reflecting lower prices for Greek bonds.

ESMA said details from some banks were given to the press or analysts but left out of annual reports “which raises concerns over the quality of the financial statements and the consistency of the communication by issuers of financial matters.”

Many banks said they held credit default swaps (CDS) on Greek debt, a form of insurance in case the country went bust, but it was hard to see if the banks were buyers or sellers of CDS and what their impact was on the bank’s results.

Only half the banks gave details about their non-sovereign exposures to Greece, with only two showing impairment on sovereign debt from Portugal, which also needed an EU bailout.

Reuters reported on Tuesday that Greece is unlikely to pay what it owes and further debt restructuring is likely to be necessary. Government debt in Spain, Italy and other euro zone countries has been under pressure for months as well.

ESMA, made up of securities regulators from the 27-country bloc, plans to review 2012 annual reports to see how banks have accounted for the writedown on Greek debt.

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