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Sunday, October 16, 2011 9:05 PM


Deutsche Bank Seeks "Voluntary" 50% Haircut on Greek Debt, Resists Recapitalization Efforts


The Economic Times reports Deutsche Bank boss in talks over Greek debt

The head of Germany's biggest bank, Deutsche Bank, is conducting talks over a 50-percent write-down of Greek debt in his capacity as chairman of the global banking lobby, a newspaper reported Sunday.

Citing both government and banking sources, the mass circulation Bild said that Josef Ackermann was participating in negotiations on a voluntary "haircut" on Greek debt that could be as high as 50 percent.

European Union leaders are gathering next Sunday in Brussels and hope to present a comprehensive solution to the eurozone debt crisis that threatens to tip the 17-nation zone -- and the rest of the world -- into recession.

It is widely expected that leaders will announce that private investors will have to accept a greater loss -- or "haircut -- on their holdings of Greek debt. Speculation has focused on a 50 or even 60 percent write-down.

To prevent these heavier losses from prompting a bank crisis, EU leaders are also thought to be looking at ways to recapitalise the main lenders.

Ackermann spoke out on Thursday against a "forced" recapitalisation of banks, saying the debate was "counterproductive" because most banks had beefed up their capital resources on their own already.

The head of the eurozone finance ministers, Jean-Claude Juncker, however has insisted that cash must be pumped into banks "to ensure that there is no danger of contagion for the entire banking system."
Not "Voluntary"

For starters there is nothing voluntary about 50% haircuts. Second, a 50% haircut is not enough. Third, regardless of what Ackermann says, the entire European banking system is insolvent and thus in desperate need of recapitalization.

Banks passed stress tests only because there were no sovereign debt writedowns included.

We need to look beyond Greece to Portugal and Spain. More haircuts are coming and for countries other than Greece.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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