January 28, 2015 / 1:50 PM / 5 years ago

UPDATE 2-Greek bank stocks hit record lows after leftist poll win

(adds Greeks looking at UK real estate)

By George Georgiopoulos

ATHENS, Jan 28 (Reuters) - Greek bank stocks fell by more than 22 percent on Wednesday as the Athens market suffered a third day of turmoil following the election of a government led by leftist anti-austerity Prime Minister Alexis Tsipras.

Fears that Greek banks, facing increased deposit outflows, could be shut out of European Central Bank liquidity assistance if their assets were no longer accepted as collateral led to a rout as investors dumped financial stocks. Bank shares have fallen by a total of 40 percent since Sunday’s vote.

Tsipras’ new government has defied expectations it would be wary of upsetting European and International Monetary Fund creditors after the election, immediately halting planned privatisations of Greece’s biggest port and biggest utility ahead of talks on renegotiating its bailout conditions.

The moves, made without consulting lenders, highlighted the risk of a breakdown in the talks, with a succession of German politicians warning that bailout terms must be respected.

“The floor is zero if things go badly in the negotiations between the new government and the rest of the euro zone,” said Simon Maughan, head of research at OTAS Technologies. “Should their collateral be disqualified by the ECB, they will have no money, and a bank with no money is not a bank.”

A floor may not be reached until the outcome of the negotiations is known, he added.

New Finance Minister Yanis Varoufakis said he believed common ground could be found but talks would not be easy.

The 22 percent drop in the main bank sub-index brought losses so far this week to 40 percent, with the main Athens index down more than 8 percent.

The selloff has coincided with a sharp rise in Greek government bond yields and those of banks. The yield on a bond maturing in 2018 and issued by Eurobank, the only Greek lender not majority-owned by the state bank bailout fund, has jumped to over 16 percent from 4.37 percent in June.

“The selling is mainly from foreign institutions, they are doing most of the volume. They have lost patience,” said a senior banker at one of Greece’s top four banks.

The banker said these foreign investors were concerned by Syriza’s decision to team up with another anti-bailout party, the Independent Greeks, which upset expectations that a more balanced coalition government would emerge.

“Their scenario was proved wrong, the new government is too anti-bailout in their view,” the banker said. “Their theory was that Syriza would form a coalition with centre-left pro-European partners ahead of crucial talks with creditors.”


Bankers said deposit outflows increased in the weeks leading up to the vote, intensifying the liquidity squeeze on the country’s lenders, which stand ready to tap emergency liquidity (ELA) from the Bank of Greece.

“Deposit withdrawals picked up in the last two weeks in January as we got closer to the vote,” said another senior banker. “There was more cash taken out than in December.”

“Still, compared to the period leading up to the elections of 2012, the overall outflow has been smaller, around 10 to 12 billion euros including December,” the banker said.

Such outflows would translate to about 7 percent of household and deposit balances of 164 billion euros in November, lower than the 34 percent fall the banking system suffered in 2010-12.

Still, deposit balances are likely to have dropped close to 2012 lows of around 151 billion euros.

In a sign that some money could be heading abroad, some real estate brokers in London saw an uptick in interest from Greek clients.

At Chestertons’ office covering the prime residential areas of Chelsea and Kensington, Greeks have accounted for around 10 percent of the deals done in the past couple of years, and interest started to increase in the past couple of months, said sales director Guy Gittins.

On Monday, a 2-bedroom apartment marketed at the weekend had received 23 enquiries, 6 of them from Greece, he said.

After the big outflows in 2012, Greek banks had improved their funding profiles as deposits started to gradually return to the system, helping them to reduce their reliance on European Central Bank funding.

By September last year banks had halved their reliance on ECB funding as a percentage of total assets and had brought their funding from the Greek central bank’s emergency liquidity window, or ELA, down to zero.

ECB funding ranged between 5 to 11 percent of their total assets in the third quarter of 2014. But deposit outflows that started in December reversed the trend forcing banks to raise their borrowings from the ECB by 25 percent to 56 billion euros.

Earlier in the month the ECB approved an emergency funding line for Greek banks to be provided by the country’s central bank.

“There is no way that banks will avoid having to tap ELA liquidity the way things are going,” one banker said. (Additional reporting by Alistair Smout, Lionel Laurent, Sudip Kar-Gupta and Carolyn Cohn in London; Editing by Giles Elgood)

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