On Tuesday, Greek bank stocks are expected to suffer more losses following a five-week stock market shutdown caused by the nation's financial crisis. On the first day of trading, the shares took a 30 percent plunge.
Since trading resumed on the Athens stock exchange for the first time since Greece was almost forced to abandon the euro last month, Greek bank stocks were the biggest losers after the benchmark index in Athens opened nearly 23 percent lower. According to Reuters, all five shares from National Bank of Greece, Alpha Bank, Piraeus Bank, Attica Bank and Eurobank were locked down at the daily instability limit with no buyers after early trades.
In June, Greece's lenders have been battered by bad loans, a flight of euros from Greece and lately by the imposition of capital controls. And with the recent Greek bank losses, traders said buyers were apparently not looking for bargains until lower levels were achieved.
"Market value is being destroyed on very light volumes as buyers stay away from bank shares," one unnamed fund manager said. "It will take some days for the market to balance out."
Traders added that existing shareholders feared that they could see their holdings diluted since Greek banks needed to recapitalize, thus keeping buyers at bay.
"It is far from clear that when recapitalized, these banks will immediately get back to normal, and that they will shoot up to trade nearer book value again," a UK-based opportunity investor stated.
From the time when Greece trading suspension was put into effect at the end of June when the nation fell into default on its debt, capital controls were launched, which include bank and financial markets closure. As per KY3, the capital controls aimed to prevent billions of euros from flooding out of the country. ATM withdrawals were also limited to 60 euros ($66) per day.
The shutdown, however, caused large parts of the economy to seize up. While the extended closure devastated the Greek factories, where activity slumped to its lowest level on record in July.
In the first half of the year, massive cash withdrawals by account holders and the economy's downfall back into recession have left Greek banks in a terrible state. And since Greece relied on emergency cash from the European Central Bank to stay afloat, a bailout deal with its international creditors hit the banks last month, USA Today Money noted. Europe's new $96 billion bailout plan includes 25 billion euros ($26.7 billion) to repair the banks' finances.
Unfortunately, even with the bailout, investors are bracing themselves for huge loses as they may have to contribute to the rescue of the banks. Since Greece urgently needs money before Aug. 20 to make a payment to the ECB to stay in the euro, Greek authorities declared a ban on short selling Monday. Some other restrictions on trading also remain in effect.
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