By Josie Cox
Greek stocks and bonds took a beating Thursday after the
European Central Bank fueled an increasingly tense standoff between
the Greek government and its international creditors.
Athens' main stock index fell by as much as 9%in early trade
before ending the session 3.4% lower, while yields on Greek
government bonds soared, indicating that investors see a swelling
risk of default.
The sharp moves came after the ECB said Wednesday evening that
it would stop accepting Greek bonds as collateral for central bank
loans.
Losses were particularly hefty in the banking sector, where
shares in Piraeus Bank SA, National Bank of Greece SA, Alpha Bank
AE and Eurobank Ergasias SA fell by as much as 27% in early trade,
before paring losses and closing between 10% and 15% lower.
"It is currently not possible to assume a successful conclusion"
of Greece's current bailout, the ECB said late Wednesday, just
hours after its president, Mario Draghi, met with Greece's new
finance minister, Yanis Varoufakis in Frankfurt.
Wednesday's announcement marked the first time since 2012--when
Athens was locked in another round of acrimonious negotiations with
its creditors--that the central bank has suspended its waiver for
Greece's junk-rated bonds.
In a further attempt to break the deadlock, Mr. Varoufakis met
German finance minister Wolfgang Schäuble Thursday in Berlin. Mr.
Varoufakis said Greece would do everything in its power to avoid
default, and proposed a bridging program to negotiate new debt
terms. Mr. Schäuble said the causes of Greece's pain lay in Greece,
not in the rest of Europe, and that overhauls were unavoidable.
"No solution can now be swift or clean," said Nick Lawson, a
senior trader at Deutsche Bank, while Gary Jenkins, head credit
strategist at London-based asset manager LNG Capital termed the
ECB's move 'aggressive'.
"Whilst the most likely outcome is for some kind of compromise,
there still remains the possibility that Greece could end up
defaulting and exiting the eurozone, almost by accident as much as
design," he said.
Salman Ahmed, global fixed-income strategist at Lombard Odier
Investment Managers, which has total assets under management of 156
billion Swiss francs ($168 billion), said the move shows the ECB is
clearly playing hardball.
He said it was important to note that Greece hasn't completely
lost access to funding--it can still use emergency liquidity
assistance, or ELA. However, "if the ECB decides to put a cap on
the ELA, then Greece will have a real problem, and this could lead
to 'Grexit'."
That heightened perceived risk of default saw the yield on the
country's two-year debt soar by more than three percentage points
to well above 19% before retreating somewhat. The yield on Greece's
five- and 10-year debt also climbed sharply on the day, but
recovered to trade around 13.2% and 9.7%, respectively at the
European market close.
Short-term yields rising above those on longer-dated bonds is
often a sign that investors are worried about the risk of default.
Yields rise as bond prices fall.
"Since the beginning of the eurozone crisis, the ECB has again
and again tried to pass the onus of responsibility for turning the
structural corner to national governments," said Anthony Peters, a
strategist at capital markets adviser SwissInvest.
"Letting [national governments] use cheap ECB funding as a means
of postponing reforms wasn't its intention [and] it has finally
made good and has quite publicly returned its wallet into its back
pocket," he added.
Germany's DAX and France's CAC ended Thursday 0.1% lower and
0.2% higher respectively, while London's FTSE 100 index added
0.1.
The pan-European banking subindex fell around more than 1% while
the VStoxx Index, a gauge of volatility on the euro Stoxx 50 Index,
rose almost 1% on the day.
In currency markets, the euro tumbled more than 1% close to a
fresh 11-year low immediately after the ECB's announcement on
Wednesday, but managed to claw back the majority of that on
Thursday. One euro currently buys $1.142.
Frederik Ducrozet, a senior economist at Crédit Agricole, said
the ECB had resorted to a "risky, albeit calculated political
move."
"It is bad news in the sense that it goes against Greece's
proposal to buy time in the negotiation process. In the end, the
decision to pull funding has to be a political one, so even in the
extreme case where there is no agreement by early March, we find it
hard to imagine the ECB intentionally triggering a bank run," he
added.
Simon Derrick, chief market strategist at BNY Mellon said in the
first instance the move sends a very clear signal to the Greek
government rather than anything else: "There is little room for
compromise in the coming negotiations."
Write to Josie Cox at josie.cox@wsj.com
Access Investor Kit for National Bank of Greece SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GRS003003019
Access Investor Kit for Piraeus Bank SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GRS014003008
Access Investor Kit for Alpha Bank SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GRS015013006
Access Investor Kit for Eurobank Ergasias SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GRS323003004
Access Investor Kit for Alpha Bank SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US02071M1018
Access Investor Kit for Eurobank Ergasias SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US26844B2097
Access Investor Kit for National Bank of Greece SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US6336437057