European Banks Moving Toward Rollover Of Greek Debt

By Lionel Laurent and Edward Taylor

PARIS/FRANKFURT, June 13 (Reuters) - European banks holding billions of euros in Greek sovereign debt appear to be moving towards agreement on a rollover in which they would buy new debt to replace bonds reaching maturity.

The rollover, which would be part of a second bailout package for Greece worth around 120 billion euros, would give Athens more time to tackle its 340 billion euro ($488 billion) debt mountain -- though many analysts believe a much deeper restructuring, in which creditors would have to take losses, remains likely in the long term.

Germany last week proposed a swap in which private investors would exchange their Greek government bonds for new ones, effectively extending Greek bond maturities by seven years. But banks appear to be favouring the softer option of a rollover.

"We are more and more starting to converge around a Vienna Initiative-style rollover," said Jacques Cailloux, European economist at RBS, referring to a scheme in which European banks agreed to maintain their exposure to Eastern Europe when it faced economic pressures in 2009.

Private sector participation in the new Greek bailout would be worth around 30 billion euros, euro zone official sources have said. The rest of the 120 billion euros would be provided by proceeds from sales of Greek state assets, and by additional emergency loans from the European Union and the International Monetary Fund. [ID:nLDE7581PP]

So far only a few banks have publicly come out in favour of a rollover, such as France's Credit Agricole (CAGR.PA), which owns Greek bank Emporiki (CBGr.AT). But Germany's banking association on Saturday said it backed the idea of private creditors participating in the rescue, though it did not specify how. [ID:nLDE75A065]

"They're going to do a rollover now it seems," said Nick Firoozye, head of regional interest rate strategy at Nomura.

(Read on...)