Greece Wins Full Second Bailout at Lower Rates

Arthi Gupta
21 Feb, 2012
New York City

European leaders, the IMF and the ECB approved the second large bailout to Greece that will increase the losses to private bond holders, force Greece to cut more spending and offer loans at lower rates. European markets edged lower from the seven-month high.

[R]12:30 PM Frankfurt – European leaders, the IMF and the ECB approved the second large bailout to Greece that will increase the losses to private bond holders, force Greece to cut more spending and offer loans at lower rates. European markets edged lower from the seven-month high.[/R]

European markets edged lower from a seven-month high after the euro zone ministers, the International Monetary Fund and the European Central Bank approved the second bailout but only after more than thirteen hours of negotiations.

The second bailout agreed first in October was derailed as Greece faltered in implementing its austerity measures and European politicians demanded stricter conditions.

The agreement calls for the release of €130 billion bailout in stages that will be monitored by a permanent committee and will have a priority in repaying debt over the general expenses.

The final agreement increased the loss to private bond holders to 53.5% of face value or the equivalent to 75% of overall loss.

Greece will lower its debt to 120.5% of its gross domestic product by 2020, from the current debt of nearly 160% largely with the help of lower interest rate on the newly exchanged bonds in which the ECB will also participate.

The debt-swap would have a coupon of 2% in 2014, rising to 3% between 2015 and 2020 and to 4.3% thereafter.

Greece also will make additional sacrifice and lower its pharmaceutical expenditures by €1 billion in 2012 and use more generic drugs, save €30 million but cutting mayoral staffs across the nation, lower military spending by €300 million and reduce doctors’ overtime pay by at least €50 million.

Greece may need more aid in the years after 2014 and lenders and politicians appeared to be prepared for it. Between 2015 and 2020, Greece may need additional loan of €50 billion.

In Paris trading, the CAC-40 Index declined 25.43 or 0.7% to 3,446.12 and in Frankfurt the DAX Index edged lower 54.21 or 0.7% to 6,893.70.

The Italian 10-year yield declined 12 basis points to 5.36% and Spanish 10-year bond yields fell eight basis points to 5.07%.

Gainers & Losers

Aareal Bank AG plunged 6.5% to €18.20 after the German real estate lender reported fourth quarter net income attributable to shareholders increased 16% to €29 million from €25 million in the previous year.

Net interest income for the quarter grew 5% to €146 million from €139 million in the prior year.

Brenntag AG fell 1.1% to €86.90 after the distributor of specialty and industrial chemicals reported fiscal year 2011 sales increased 13.5% to €8.68 billion in 2011 from €7.65 billion in 2010. Profit for the year surged 90.5% to €279.3 million or €5.39 per share in 2011 compared with €146.6 million or €2.93 per share a year ago.

Fresenius Medical Care AG & Co. KGAA slid 1.4% to €53.05 after the kidney dialysis company said full-year 2011 net revenue grew 6% to $12.795 billion compared with last year. Net income for the full year rose 9% to $1.07 billion versus the year-ago period.

TNT Express NV dropped 2.6% to €9.92 after the Dutch logistics firm reported fourth quarter reported revenues rose 2.3% to €1.87 billion from €1.83 billion last year. Net loss for the quarter was €173 million compared to a profit of €4 million in the 2010 period.

Wienerberger AG dipped 1% to €9.40 after the producer of bricks and clay roof tiles reported fiscal year 2011 revenues rose 16% to €2.02 billion from €1.74 billion a year ago. Net income increased to €40.8 million compared to a loss of €34.9 million in the prior year. The company increased its dividend to 12 cents a share.