A restructuring of Greece's debt does not pose a serious threat to Europe's biggest banks after the European Central Bank (ECB) propped up the country's finances, Goldman Sachs said yesterday.
Goldman analysts said the impact on European banks would be much smaller now than a year ago at the height of Greece's sovereign crisis. They calculated that a haircut of 20 per cent to 40 per cent on Greek government bonds would cause losses of €13bn (£11bn) to €41bn or 1 per cent to 3 per cent of tier one capital – for Europe's banks.
"By extending €91bn of refinancing facilities to Greek banks (and a further €153bn to Portuguese and Irish banks), the ECB has effectively disintermediated the 'core"banks from the periphery," the analysts said.
"As a consequence, the knock-on effects of a restructuring would be milder for European banks today than, say, just last year."
While insulating banks from other European countries from the full consequences of a Greek debt restructuring, the ECB's support has left the Greek banks on the hook.
Up to 80 per cent of Greek banks' tier one capital – the main buffer against losses – would be wiped out if they were forced to accept 60 per cent of face value for their government" bonds, Goldman said.
Under that scenario, the Greek banks would need capital injections to stop a run on their deposits, Goldman said. "Greek banks would realistically require substantial additional capital to cover for incremental losses from a theoretical restructuring," the analysts said in a note reported by Bloomberg.
Goldman's optimistic analysis could not stem the continuing surge in the price of gold as investors focused their fears on the United States.
Gold hit a new high of $1,508 an ounce yesterday – the precious metal's fifth straight record session. Investors were already buying in to gold before Standard & Poor's turned negative on its outlook for US government debt for the first time on Monday.
The price of gold increases when the dollar is weak and investors worry about economic growth and inflation.
Other fears adding to the attraction of gold are unrest in the Middle East and North Africa and the economic effects of the Japanese earthquake.
The dollar fell to a three-year low against a basket of currencies as investors moved away from assets closely linked to the US economy.
A Reuters poll showed commodities analysts predicting further increases in the gold price with an average forecast of $1,700 an ounce in 2015. That rise would be slower than the pace seen in the last few years.Reuse content