Greece’s banks just had their worst day on record, after getting absolutely hammered yesterday, and the day before.
The Athens stock exchange closed down by 9.24% , but the banks listed on the index are down much further, falling by about 25%.
Each of Greece’s four biggest dropped by at least 20%. One, Bank of Piraeus, dropped by 30%, the maximum limit for Greek stocks. It’s likely the worst day on record for the sector.
Together, they have have lost between a third and half of their value since Syriza was elected this weekend. It appears that shareholders are not warming to the idea of a radical left-wing government. The incoming Syriza government has already been laying out its programme this morning, including halting privatisations and layoffs, and hiking the minimum wage by 10%.
Banks lost more than 10% of their share value on Monday and Tuesday, but today is even worse. Here’s how that looks for Bank of Piraeus:
Here’s the Financial Times on the sell-off:
The real danger is that the Greeks themselves lose confidence. There are tentative signs that money is again being sent abroad, as it was in mid-2012. Nikolaos Panigirtzoglou at JPMorgan points out that €350m was sent from Greece to Luxembourg money funds since the start of last week. Extrapolating to all cash flight, he estimates as much as a 10th of Greek deposits may have left already this year. If a Greek bank panic develops it will strengthen the German hand, and make negotiations that much harder.
Two Greek banks already asked for emergency liquidity assistance before the election, not because they were experiencing a bank run but as a precaution because of the extremely volatile conditions they were seeing.
Greece’s banks are still reliant on a lifeline from the European Central Bank, even though Syriza might not like it. The ECB lent €56 billion to Greece’s banks in 2014. That’s down from €63 billion in 2013, but still makes up a huge proportion of their funding.
If people start drawing down their deposits or money gets sent abroad, as the FT indicates, the banks will be even more reliant on that crutch, which is tied to its bailout agreement.
The ECB issued a veiled threat in early January to that effect, noting that the special conditions it offers to Greek banks are part and parcel of the austerity agreement that the incoming government is currently trying to tear up.