Greek Banks to Decide Friday on Debt Buyback – Sources

ATHENS–The management of Greece's leading banks will decide Friday whether to participate in an ambitious plan by the government to buy back billions of euros worth of outstanding bonds in an effort to cut Greece's growing debt burden, people familiar with the situation said Thursday.

The four leading banks–National Bank of Greece SA (NBG, ETE.AT), Eurobank Ergasias SA (EGFEY, EUROB.AT), Alpha Bank AE (ALBKY, ALPHA.AT) and Piraeus Bank SA (TPEIR.AT)–have all scheduled board meetings Friday to discuss the issue after last-minute consultations with Greece's finance minister.

"The boards of directors will decide tomorrow," a senior Greek bank executive told reporters Thursday after the meeting.

Earlier this week, Greece launched a plan to retire roughly half the EUR63 billion ($81.6 billion) in debt the country owes to private creditors, something demanded by the country's European and international creditors in exchange for releasing fresh aid to Athens.

Under the plan, Greece will offer as much as EUR10 billion to buy back that debt, offering a maximum price of between 32.2 euro cents and 40.1 euro cents on the face value of the debt.

Since a EUR200 billion debt restructuring earlier this year, Greek bonds have been trading mostly at around a quarter of their face value, though they have rallied substantially over the past few weeks as investors expected Greece to offer to buy back its bonds.

Greece hopes that with its EUR10 billion it can attract offers of as much as EUR30 billion of bonds, thereby shaving off EUR20 billion of debt.

The country's debt management agency has given bondholders until 5 p.m. London time (1700 GMT) Friday to make offers of how many bonds they would sell and at what price.

Greece's big four banks control a combined EUR15 billion in Greek government bonds–roughly a quarter of the total outstanding–making their participation in the debt buyback critical to its success.

According to a Greek banking industry official briefed on the debt plan, the response by other investors–mainly foreign banks and hedge funds–to the buyback offer has been "going well" so far, but he provided no further details.

Greece's big four banks, who were hit hard by the debt restructuring earlier this year and must recapitalize to return to solvency, have expressed reservations about the debt-buyback plan in recent days, concerned about cashing out their holdings at a relatively low price and forgoing the yield income those bonds promised for the future.

At the same time, the banks have asked the government for more favorable tax treatment of certain deferred tax assets in the future as a way to ease their capital needs.

Despite that, Greek bank officials have signaled that they will participate in the buyback.

"Things could still change. But for now, there is a willingness to go ahead with this," said the banking industry official.