Monday, February 8, 2010

Greek Stocks Drop 3.9%; Banks Tumble

European Union: adapted from original orthogra...Image via Wikipedia

Greek stocks fell sharply Monday, extending their losing run to four sessions, as investors battered banking shares.

The Athens Stock Exchange's general index closed 3.9% lower at 1806.40 on relatively heavy turnover, while major markets firmed. Investors also demanded a higher premium for holding Greek government bonds over German Bunds, the euro zone benchmark.

"What we are clearly seeing is not a selloff in just specific Greek shares; we are seeing a wholesale selling off of the country," said Nicholas Douzinas, head of foreign markets at Intersec Securities in Athens.

"We are seeing many open sell orders on the market," he added.

Banking stocks were especially hard hit, falling 6.8%, amid speculation that Greek banks were facing financing difficulties and possibly further credit-ratings downgrades. Market leader National Bank of Greece SA dropped 8.5%, while No. 2 lender EFG Eurobank Ergasias SA dived 9% and Alpha Bank SA closed 5.4% lower.

But both Greek and foreign banking officials Monday privately denied speculation that the Greek banks were facing any financing difficulties. Analysts said that the selloff in bank stocks reflected the difficult environment facing Greek banks.

"I'm a little doubtful about all this speculation," said a senior analyst at a local bank. "But it's a fact, the market sees that the banks are facing a very difficult environment and that's weighing on banking stocks."

Indeed, Greek banks, which are due to start reporting results next week with Piraeus Bank SA on Feb. 18, are widely expected to report disappointing fourth-quarter earnings.

Since December, when Greece's sovereign debt was hit by three ratings downgrades in quick succession, the Athens stock market has lost more than 1,000 points. The index is down nearly 18% this year.

Bank shares also are suffering from the higher yields that investors are demanding for Greek debt, which indirectly affects their borrowing costs. The yield gap between 10-year Greek and German bonds widened to 3.63 percentage point Monday, up from about 3.50 percentage point on Friday.

The market's fall came ahead of a meeting Wednesday between Greek Prime Minister George Papandreou and French President Nicholas Sarkozy and a European Union summit on Thursday.

Many market participants are looking to see if Greece's EU partners will declare some kind of direct or indirect financial support for the country in an effort to forestall future borrowing problems when the country goes to the bond market in April or May.

In addition, the Greek government is to publish a much-awaited tax reform proposal on Wednesday. Civil servants also have scheduled a strike for Wednesday.

"Right now, everyone is looking ahead to Wednesday and Thursday," said Intersec Securities' Mr. Douzinas.

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