Greek bank stocks battered as bailout talks grind on

The Athens stock exchange slipped further Tuesday as bank shares were battered for a second straight day, while Finance Minister Euclid Tsakalotos held a new round of talks with Greece's creditors on the terms of a mammoth new bailout.

The ATHEX index finished the day down 1.22 percent after suffering its steepest ever fall of 16.32 percent on Monday when trading resumed after a five-week shutdown imposed by the country's debt crisis.

Banking shares were again the worst hit, with Piraeus falling the maximum 30 percent allowed for the second day running. Eurobank shares fell 29.70 percent, those in Alpha Bank by 29.65 percent and National Bank by 28.45 percent.

"Banking shares are the ones we have the most doubts about," said Konstantinos Botopoulos, head of the Greek financial markets commission. "Their recovery will depend on the recapitalisation of the banks."

The Athens market reopened on Monday five weeks after the government imposed capital controls to prevent a bank run and stave off financial collapse at the height of its standoff with EU-IMF creditors over a new bailout.

The ATHEX suffered its worst drop in nearly 30 years, highlighting investors' anxiety about the Greek economy even after a new rescue deal worth up to 86 billion euros ($94 billion) over three years was agreed in principle last month.

The previous worst loss in the Greek stock market's history was a 15.03 percent plunge in 1987.

Senior EU and IMF auditors kicked off talks a week ago with Greek ministers to finalise the terms of the new bailout decided after months of acrimonious wrangling.

Analyst Michael Hewson of CMC Markets UK predicted that the new rescue package will have to be "well above the 86 billion euro numbers being bandied about, which in turn is likely to make any discussions about debt relief even more contentious."

What is more, Greece faces a repayment deadline of 3.2 billion euros to the European Central Bank on August 20 -- and if the bailout talks grow tense Greek banks may "come under further pressure in the coming days," Hewson said.

Tsakalotos was holding Tuesday his second meeting with EU and IMF negotiators since their arrival in the country last week.

Government spokeswoman Olga Gerovassili said initial talks finished on Tuesday and would shift Wednesday to a "second phase" in which the two sides would begin actually drafting the accord.

She said expressed optimism an agreement would be concluded on August 18, "if the two sides respect the commitments of the July 12 summit" that set the stage for the new bailout.

The tough conditions demanded by creditors in return for the rescue funds have put a major strain on Prime Minister Alexis Tsipras, whose leftist Syriza party came to power on an anti-austerity platform.

The 41-year-old premier, who faced a mutiny among his lawmakers last month, has warned that early elections will be called if his MPs refuse to ratify the new bailout in parliament.

- 'Could be worse' -

Uncertainty over the fate of Greece's economy, especially fears of a "Grexit" out of the eurozone, has seen bank customers withdraw some 40 billion euros since December, leaving lenders dangerously low on cash and in urgent need of recapitalisation again.

Banks across Greece were ordered to stay shut when the government imposed its capital controls on June 26. They reopened on July 20, but withdrawals and money transfers abroad remain restricted.
Analyst Craig Erlam of Canadian forex trader Oanda said the curbs had helped stem further damage to the banking sector. "In reality, it could be even worse if daily loss limits and a ban on shorting hadn’t been put in place," he said.

The reopened stock market currently operates as normal for foreign investors but local traders still face restrictions and cannot buy securities with money from their bank accounts in Greece. They can, however, use foreign bank accounts or make cash transactions.

The Greek economy is forecast to contract by at least 3.0 percent this year.

Greece registered record dismal manufacturing data in July, with the latest purchasing managers' index (PMI) falling to 30.2.

"The worst manufacturing PMI number ever... well below the economic breakeven level of 50, (threw) into sharp focus the damage done to the Greek economy in the last few weeks by political uncertainty and the ongoing capital controls," said CMC's Hewson.