Greek Banking Concern Update: The Importance Of Regulatory Forbearance
January 19, 2019
Edit
In Nov of terminal year, I blogged almost the Greek banks, too specifically Eurobank. Since that time, Greek banking concern prices receive got remained nether pressure, falling almost 20%, although Eurobank has bucked the tendency somewhat, rising 10%. It is nevertheless downward almost 10% YTD after rallying inward tardily 2018, underperforming what has been a rigid rally inward global banking concern part prices this year.
Having given the issues some farther thought, I receive got realised that I may receive got initially framed the issues somewhat inaccurately inward my initial post. While I stand upward yesteryear all the analysis - that the Greek economic scheme is healing, too that the Greek banks are genuinely robustly profitable at nowadays on an underlying basis, too every bit a result, are rapidly repairing their ease sheets - inward hindsight I believe this analysis assort of missed the point: none of that is relevant inward the absence of regulatory forbearance.
The issues tin hold out roughly though of every bit such: Banks are required yesteryear regulators to handgrip a sure amount of upper-case missive of the alphabet against their assessed risk-weighted assets. The Greek banks receive got written downward their ease sheets significantly over the yesteryear decade, but only to a dot where they soundless receive got plenty regulatory upper-case missive of the alphabet (like Buffett says, provisioning for bad debts is a self-assessed examination where the penalisation for failure is death). However, the actual reality is that, patch they receive got made a huge amount of progress inward working through legacy bad loans, they receive got soundless under-provisioned for legacy exposures (and are too carrying important quantities of deferred revenue enhancement assets on their ease sheets every bit well). What this way is that their 'kitchen sinked' ease canvas - i.e. what they would expression similar inward the absence of regulatory upper-case missive of the alphabet requirements, where they were costless to receive got a hatched to the carrying value of their assets too grade them downward to conservative levels allowing for 'fresh start' accounting - would characteristic significantly lower upper-case missive of the alphabet levels than they are electrical current claiming. And that grade of upper-case missive of the alphabet would almost for certain autumn curt of regulatory minimums.
The province of affairs tin hold out idea of roughly every bit such: A banking concern may currently hold out profitable too internally generating upper-case missive of the alphabet of enjoin €1bn a twelvemonth (through pre-provision profits too negative internet bad debt formation, every bit good every bit the utilisation of deferred revenue enhancement assets). However, the majority value of their equity may hold out €7bn (and required capital, enjoin €6bn), but their realistic mark-to-market upper-case missive of the alphabet after writting downward legacy bad loans may hold out closer to null (or fifty-fifty negative - especially if DTAs are excluded from capital). This is roughly the province of affairs at Piraeus at the moment.
What this way is that the society is both grade to marketplace (M2M) upper-case missive of the alphabet deficit, but too grade to marketplace profitable (a flipside oft overlooked), too on electrical current trends, the latter is piece of cake addressing the former. In the instance above, 1 twelvemonth hence, M2M upper-case missive of the alphabet would receive got risen to €1bn; 2 years hence to €2bn, etc. Given plenty fourth dimension (and assuming naught goes incorrect operationally or economically), existent upper-case missive of the alphabet would eventually converge amongst accounting/regulatory capital, too you'd hold out left amongst a salubrious banking concern that is both real profitable and well capitalised (instead of but profitable). Piraeus' diluted marketplace cap is currently almost €400m - less than 1x electrical current underlying earnings - but could ascension to €5bn+ over 5 years or so if it were to movement from the latter bucket to the former.
However, this outcome requires non only that electrical current operational/economic trends continue, but crucially, that the society hold out given the necessary fourth dimension to internally rebuild upper-case missive of the alphabet yesteryear regulators. This introduces the key number of regulatory forbearance to the eventual outcome. If European regulators plow about too enjoin at whatever time, yeah, genuinely you lot don't receive got plenty existent capital, too nosotros withdraw you lot to heighten more, the stock is a zero. This is a perpetual peril so long every bit the society remains de facto upper-case missive of the alphabet deficient.
It is roughly the province of affairs mortal earning $1m a twelvemonth would break themselves inward if they had a negative internet worth of $5m. If you lot maintain earning $1m a twelvemonth too using it to pay downward debts, you'll terminate upward inward a real satisfactory fiscal seat to a greater extent than than 5 years out. However, if you lot (1) lose your chore (i.e. Hellenic Republic has some other economical downturn/crisis inward this analogy); or (2) the banks you lot owe demand that you lot repay the total amount instantly at whatever fourth dimension inward the adjacent 5 years, you lot volition travel bankrupt.
An of import implication of this is that the most of import variable inward the investment equation is the outlook for (and odds of) regulatory forbearance. My initial Eurobank analysis placed primacy on the fact that operationally, things were going corking too rapidly improving, too yet the part prices had declined. But that missed an of import dot - none of that matters if regulatory forbearance is non granted, too the odds investors house on hereafter regulatory forbearance arguably ought to hold out a much greater part cost driver than operational trends. In that respect, important part cost declines fifty-fifty inward the human face upward of important operational improvements could inward fact hold out quite rational - especially because those operational improvements are non necessarily instantly obvious to casual observers.
A center role of the job hither is that if you lot haven't got a M2M ease sheet, too so you lot too don't receive got M2M profits. Continuing our initial example, if you lot generate €1bn of existent upper-case missive of the alphabet during the year, increasing your existent upper-case missive of the alphabet from €0bn to €1bn, but the carrying value of your upper-case missive of the alphabet is €7bn, what you're going to do is write off €1bn of imitation upper-case missive of the alphabet against the novel €1bn of real, internally generated capital. You'll terminate the twelvemonth amongst null reported earnings too a constant grade of accounting equity of €7bn, fifty-fifty though the marked-to-market internet worth of the line of piece of work concern has improved €1bn.
The job amongst this is that it obscures from investors, regulators, too journalists existent operating improvements inward profitability too upper-case missive of the alphabet generation, every bit those existent profits withdraw to hold out written off against imitation capital. This contributes to the ongoing feel that the Greek banks are soundless inward fiscal difficulty too struggling nether a mount of bad debt, when inward actual fact they are doing but fine. If they were reporting profits of €1bn, things would expression real different, but they are not. And the optics affair here, every bit they contribute to the regulatory actions later on taken. If in that location is a perception that the Greek banks are soundless struggling, it increases the likelihood they are forced to heighten capital.
In this respect, in that location were some negative developments inward 2018 too into early on 2019. Media reports propose the ECB has been sending memos to European banks demanding that they write off their bad loans to a greater extent than quickly. If they forcefulness banks into writing downward loans to a greater extent than rapidly, upper-case missive of the alphabet shortfalls volition hold out exposed, too the probability of forced recapitalisations/nationalisations accordingly increases.
I sympathise why they are doing this. The ECB doesn't assist almost shareholders or dilution, too nor should it. They assist almost systemically of import European banks having plenty capital. But what they perchance overlook is that their actions are oft solely counterproductive, because what they do is trigger abrupt fiscal marketplace selloffs too erode confidence, thereby impairing underlying economical performance; the might of banks to generate internal capital; too their might to heighten capital, every bit part prices teach hammered. They are doing to a greater extent than damage than practiced - especially when organic trends are already favourable, so no activeness is needed.*
I did hollo back almost these issues. One of the reasons I was attracted to (some of) the Greek banks is (1) they receive got already done several rounds of recapitalisations, too are at nowadays inward the 6-7th innings of addressing legacy bad debts inward my assessment; too (2) they receive got already agreed amongst Brussels on NPL/NPE reduction targets over 2018-21, which inward my persuasion are achievable (and which they are currently on rails to meet), provided Greece's economic scheme continues to recover at almost 2% a year. My see was that if they met those targets, forbearance on the ease would hold out granted. However, I may receive got been incorrect to assume that the European Union would award those agreements.
I am inward the procedure of reassessing the probabilities at present. However, 1 positive evolution this calendar week was that Italian banks indicated that the European Union was genuinely intending to hold out to a greater extent than flexible too pragmatic than had been reported inward the media (UBI Banca for e.g. said inward a press unloosen "... delight hold out reminded - every bit late underlined yesteryear sources closed to the supervisory say-so ... - that recommendations are formulated amongst line of piece of work concern human relationship taken of the specific province of affairs of each banking concern concerned", too went on to enjoin that no touching on was expected regarding its 2019/20 line of piece of work concern plan). However, the province of affairs is fluid, too outcomes are ultimately beholden to the whims of European Union bureaucrats.
On the brilliant side, all of the higher upward vindicates Eurobank's determination to preemptively boost its upper-case missive of the alphabet via its merger amongst Grivalia, too accelerate the workout of its legacy NPEs - albeit at the cost of meaningful dilution to shareholders. No dubiousness rising back-channel pressure level from European Union policymakers beared significantly on their determination to do so. This too probable explains why Hellenic Republic tabled the policy selection tardily terminal twelvemonth of setting upward an SPV that would transfer upward to one-half of the banking system's bad loans off banking concern ease sheets, inward telephone commutation for releasing the their DTAs - a important long term root of value at nowadays that the Greek banks are legitimately profitable on an underlying basis.** Following this merger, in that location is a practiced adventure Eurobank volition hold out able to arrive through from hither without needing to heighten farther capital, fifty-fifty if the European Union is relatively punitive inward its policy approach (I estimated inward the article Eurobank was almost €3bn underprovisioned - the transaction volition trim back that yesteryear almost €1bn, too center profits betwixt 3Q18 too the terminate of 2019 volition probable hold out some other €1-1.5bn).
On Piraeus, they volition almost for certain withdraw to heighten to a greater extent than upper-case missive of the alphabet if European Union bad debt resolution pressures increase. That has been reflected inward the stock's important underperformance relative to Eurobank (down 80% over the yesteryear 12 months, despite real robust operational progress on par amongst Eurobank), amongst the cost at nowadays trading below 0.5x normalised earnings (closer to 1x fully diluted, if the CoCos convert). I receive got a small-scale seat inward Piraeus (30bp) which I'm happy to ain at electrical current levels, but only because it is priced similar an option, because that's essentially what it is - a long dated telephone telephone selection on the (increasingly unlikely) scenario where they are non forced to heighten to a greater extent than capital. I retain a larger seat of almost 2% inward Eurobank, although trimmed some of the stock I bought inward the mid 40s inward the low-mid 50s inward recent weeks every bit my assessment of the regulatory risks receive got increased patch the cost had risen. I am currently soundless reassessing what seat size is appropriate. I do non ain National Bank of Hellenic Republic or Alpha Bank.
These stocks are non for the faint of heart, but I soundless do believe the risk-reward to hold out attractive for risk-tolerant investors. If it is indeed the instance that the European Union is discussing a 7 twelvemonth NPL provisioning window for the Italian banks, too so in that location is a practiced adventure they do adhere to prior agreements amongst Greece's banks on the measuring of NPE resolution, too vii years should hold out plenty for Greek banks to teach fully provisioned (assuming, of course, Greece's economic scheme does inward fact proceed to recover).
LT3000
*This is some other instance of some of the problems amongst the EU, that receive got created political reactions inward both the United Kingdom of Great Britain too Northern Ireland of Britain too Northern Republic of Ireland too Italy of late. European Union policymaking bodies are democratically unaccountable, too so thus oft assist picayune almost the interests of the people inward diverse European Union fellow member states - especially inward relatively small-scale countries similar Greece.
The Greek (and Italian) populations receive got already suffered terribly over the yesteryear decade every bit their downturns were severely exacerbated yesteryear European Union bureaucrats insisting on punishing austerity, to the dot where unemployment reached 27% inward Greece, too the economic scheme shrank yesteryear 30%. And the blows seem to but maintain on coming. The European Union seems either oblivious to or disinterested inward the real existent suffering some of their policy actions are inflicting on existent people, too in that location is picayune countries similar Hellenic Republic or Italy tin do almost it, every bit they receive got relinquished their sovereignty. If it had its ain currency too key bank, Hellenic Republic would non receive got to hold out beholden to the whims of European Union policymakers, too would non receive got to endure the ignominy of beingness forced unnecessarily into a debilitating depression. It is no wonder Euroskepticism is rising inward Europe - it is non without justification.
A preferable selection to a breakdown inward the Eurozone, notwithstanding (which too has many positive features), would hold out an European Union policy trunk that was to a greater extent than sensitive to the needs of its ingredient members, to a greater extent than flexible, too to a greater extent than democratically accountable. Italy has said it is attempting to reform the European Union from the inside, rather than leave of absence the European Union (Greece too attempted this, but was stonewalled; Italy, however, is a larger economic scheme too so carries greater influence), which would hold out the preferred option. One tin only promise that Brexit acts every bit a wake upward telephone telephone for the European Union governing bodies, too reminds them that their policy agenda tin only stray so far, for so long, from democratic preferences earlier a political revolt volition occur.
**The job amongst this policy option, however, is that it is hard to consider how it would non receive got the resultant of adversely impacting Greek banking concern capital. The initial draft was for banks to transfer (underprovisioned) bad debts at majority value, inward telephone commutation for relinquishing some of their DTAs. However, the value of these DTAs is carried on banking concern ease sheets, too forms a role of capital, so these transactions overall would hold out upper-case missive of the alphabet dilutive.
Having given the issues some farther thought, I receive got realised that I may receive got initially framed the issues somewhat inaccurately inward my initial post. While I stand upward yesteryear all the analysis - that the Greek economic scheme is healing, too that the Greek banks are genuinely robustly profitable at nowadays on an underlying basis, too every bit a result, are rapidly repairing their ease sheets - inward hindsight I believe this analysis assort of missed the point: none of that is relevant inward the absence of regulatory forbearance.
The issues tin hold out roughly though of every bit such: Banks are required yesteryear regulators to handgrip a sure amount of upper-case missive of the alphabet against their assessed risk-weighted assets. The Greek banks receive got written downward their ease sheets significantly over the yesteryear decade, but only to a dot where they soundless receive got plenty regulatory upper-case missive of the alphabet (like Buffett says, provisioning for bad debts is a self-assessed examination where the penalisation for failure is death). However, the actual reality is that, patch they receive got made a huge amount of progress inward working through legacy bad loans, they receive got soundless under-provisioned for legacy exposures (and are too carrying important quantities of deferred revenue enhancement assets on their ease sheets every bit well). What this way is that their 'kitchen sinked' ease canvas - i.e. what they would expression similar inward the absence of regulatory upper-case missive of the alphabet requirements, where they were costless to receive got a hatched to the carrying value of their assets too grade them downward to conservative levels allowing for 'fresh start' accounting - would characteristic significantly lower upper-case missive of the alphabet levels than they are electrical current claiming. And that grade of upper-case missive of the alphabet would almost for certain autumn curt of regulatory minimums.
The province of affairs tin hold out idea of roughly every bit such: A banking concern may currently hold out profitable too internally generating upper-case missive of the alphabet of enjoin €1bn a twelvemonth (through pre-provision profits too negative internet bad debt formation, every bit good every bit the utilisation of deferred revenue enhancement assets). However, the majority value of their equity may hold out €7bn (and required capital, enjoin €6bn), but their realistic mark-to-market upper-case missive of the alphabet after writting downward legacy bad loans may hold out closer to null (or fifty-fifty negative - especially if DTAs are excluded from capital). This is roughly the province of affairs at Piraeus at the moment.
What this way is that the society is both grade to marketplace (M2M) upper-case missive of the alphabet deficit, but too grade to marketplace profitable (a flipside oft overlooked), too on electrical current trends, the latter is piece of cake addressing the former. In the instance above, 1 twelvemonth hence, M2M upper-case missive of the alphabet would receive got risen to €1bn; 2 years hence to €2bn, etc. Given plenty fourth dimension (and assuming naught goes incorrect operationally or economically), existent upper-case missive of the alphabet would eventually converge amongst accounting/regulatory capital, too you'd hold out left amongst a salubrious banking concern that is both real profitable and well capitalised (instead of but profitable). Piraeus' diluted marketplace cap is currently almost €400m - less than 1x electrical current underlying earnings - but could ascension to €5bn+ over 5 years or so if it were to movement from the latter bucket to the former.
However, this outcome requires non only that electrical current operational/economic trends continue, but crucially, that the society hold out given the necessary fourth dimension to internally rebuild upper-case missive of the alphabet yesteryear regulators. This introduces the key number of regulatory forbearance to the eventual outcome. If European regulators plow about too enjoin at whatever time, yeah, genuinely you lot don't receive got plenty existent capital, too nosotros withdraw you lot to heighten more, the stock is a zero. This is a perpetual peril so long every bit the society remains de facto upper-case missive of the alphabet deficient.
It is roughly the province of affairs mortal earning $1m a twelvemonth would break themselves inward if they had a negative internet worth of $5m. If you lot maintain earning $1m a twelvemonth too using it to pay downward debts, you'll terminate upward inward a real satisfactory fiscal seat to a greater extent than than 5 years out. However, if you lot (1) lose your chore (i.e. Hellenic Republic has some other economical downturn/crisis inward this analogy); or (2) the banks you lot owe demand that you lot repay the total amount instantly at whatever fourth dimension inward the adjacent 5 years, you lot volition travel bankrupt.
An of import implication of this is that the most of import variable inward the investment equation is the outlook for (and odds of) regulatory forbearance. My initial Eurobank analysis placed primacy on the fact that operationally, things were going corking too rapidly improving, too yet the part prices had declined. But that missed an of import dot - none of that matters if regulatory forbearance is non granted, too the odds investors house on hereafter regulatory forbearance arguably ought to hold out a much greater part cost driver than operational trends. In that respect, important part cost declines fifty-fifty inward the human face upward of important operational improvements could inward fact hold out quite rational - especially because those operational improvements are non necessarily instantly obvious to casual observers.
A center role of the job hither is that if you lot haven't got a M2M ease sheet, too so you lot too don't receive got M2M profits. Continuing our initial example, if you lot generate €1bn of existent upper-case missive of the alphabet during the year, increasing your existent upper-case missive of the alphabet from €0bn to €1bn, but the carrying value of your upper-case missive of the alphabet is €7bn, what you're going to do is write off €1bn of imitation upper-case missive of the alphabet against the novel €1bn of real, internally generated capital. You'll terminate the twelvemonth amongst null reported earnings too a constant grade of accounting equity of €7bn, fifty-fifty though the marked-to-market internet worth of the line of piece of work concern has improved €1bn.
The job amongst this is that it obscures from investors, regulators, too journalists existent operating improvements inward profitability too upper-case missive of the alphabet generation, every bit those existent profits withdraw to hold out written off against imitation capital. This contributes to the ongoing feel that the Greek banks are soundless inward fiscal difficulty too struggling nether a mount of bad debt, when inward actual fact they are doing but fine. If they were reporting profits of €1bn, things would expression real different, but they are not. And the optics affair here, every bit they contribute to the regulatory actions later on taken. If in that location is a perception that the Greek banks are soundless struggling, it increases the likelihood they are forced to heighten capital.
In this respect, in that location were some negative developments inward 2018 too into early on 2019. Media reports propose the ECB has been sending memos to European banks demanding that they write off their bad loans to a greater extent than quickly. If they forcefulness banks into writing downward loans to a greater extent than rapidly, upper-case missive of the alphabet shortfalls volition hold out exposed, too the probability of forced recapitalisations/nationalisations accordingly increases.
I sympathise why they are doing this. The ECB doesn't assist almost shareholders or dilution, too nor should it. They assist almost systemically of import European banks having plenty capital. But what they perchance overlook is that their actions are oft solely counterproductive, because what they do is trigger abrupt fiscal marketplace selloffs too erode confidence, thereby impairing underlying economical performance; the might of banks to generate internal capital; too their might to heighten capital, every bit part prices teach hammered. They are doing to a greater extent than damage than practiced - especially when organic trends are already favourable, so no activeness is needed.*
I did hollo back almost these issues. One of the reasons I was attracted to (some of) the Greek banks is (1) they receive got already done several rounds of recapitalisations, too are at nowadays inward the 6-7th innings of addressing legacy bad debts inward my assessment; too (2) they receive got already agreed amongst Brussels on NPL/NPE reduction targets over 2018-21, which inward my persuasion are achievable (and which they are currently on rails to meet), provided Greece's economic scheme continues to recover at almost 2% a year. My see was that if they met those targets, forbearance on the ease would hold out granted. However, I may receive got been incorrect to assume that the European Union would award those agreements.
I am inward the procedure of reassessing the probabilities at present. However, 1 positive evolution this calendar week was that Italian banks indicated that the European Union was genuinely intending to hold out to a greater extent than flexible too pragmatic than had been reported inward the media (UBI Banca for e.g. said inward a press unloosen "... delight hold out reminded - every bit late underlined yesteryear sources closed to the supervisory say-so ... - that recommendations are formulated amongst line of piece of work concern human relationship taken of the specific province of affairs of each banking concern concerned", too went on to enjoin that no touching on was expected regarding its 2019/20 line of piece of work concern plan). However, the province of affairs is fluid, too outcomes are ultimately beholden to the whims of European Union bureaucrats.
On the brilliant side, all of the higher upward vindicates Eurobank's determination to preemptively boost its upper-case missive of the alphabet via its merger amongst Grivalia, too accelerate the workout of its legacy NPEs - albeit at the cost of meaningful dilution to shareholders. No dubiousness rising back-channel pressure level from European Union policymakers beared significantly on their determination to do so. This too probable explains why Hellenic Republic tabled the policy selection tardily terminal twelvemonth of setting upward an SPV that would transfer upward to one-half of the banking system's bad loans off banking concern ease sheets, inward telephone commutation for releasing the their DTAs - a important long term root of value at nowadays that the Greek banks are legitimately profitable on an underlying basis.** Following this merger, in that location is a practiced adventure Eurobank volition hold out able to arrive through from hither without needing to heighten farther capital, fifty-fifty if the European Union is relatively punitive inward its policy approach (I estimated inward the article Eurobank was almost €3bn underprovisioned - the transaction volition trim back that yesteryear almost €1bn, too center profits betwixt 3Q18 too the terminate of 2019 volition probable hold out some other €1-1.5bn).
On Piraeus, they volition almost for certain withdraw to heighten to a greater extent than upper-case missive of the alphabet if European Union bad debt resolution pressures increase. That has been reflected inward the stock's important underperformance relative to Eurobank (down 80% over the yesteryear 12 months, despite real robust operational progress on par amongst Eurobank), amongst the cost at nowadays trading below 0.5x normalised earnings (closer to 1x fully diluted, if the CoCos convert). I receive got a small-scale seat inward Piraeus (30bp) which I'm happy to ain at electrical current levels, but only because it is priced similar an option, because that's essentially what it is - a long dated telephone telephone selection on the (increasingly unlikely) scenario where they are non forced to heighten to a greater extent than capital. I retain a larger seat of almost 2% inward Eurobank, although trimmed some of the stock I bought inward the mid 40s inward the low-mid 50s inward recent weeks every bit my assessment of the regulatory risks receive got increased patch the cost had risen. I am currently soundless reassessing what seat size is appropriate. I do non ain National Bank of Hellenic Republic or Alpha Bank.
These stocks are non for the faint of heart, but I soundless do believe the risk-reward to hold out attractive for risk-tolerant investors. If it is indeed the instance that the European Union is discussing a 7 twelvemonth NPL provisioning window for the Italian banks, too so in that location is a practiced adventure they do adhere to prior agreements amongst Greece's banks on the measuring of NPE resolution, too vii years should hold out plenty for Greek banks to teach fully provisioned (assuming, of course, Greece's economic scheme does inward fact proceed to recover).
LT3000
*This is some other instance of some of the problems amongst the EU, that receive got created political reactions inward both the United Kingdom of Great Britain too Northern Ireland of Britain too Northern Republic of Ireland too Italy of late. European Union policymaking bodies are democratically unaccountable, too so thus oft assist picayune almost the interests of the people inward diverse European Union fellow member states - especially inward relatively small-scale countries similar Greece.
The Greek (and Italian) populations receive got already suffered terribly over the yesteryear decade every bit their downturns were severely exacerbated yesteryear European Union bureaucrats insisting on punishing austerity, to the dot where unemployment reached 27% inward Greece, too the economic scheme shrank yesteryear 30%. And the blows seem to but maintain on coming. The European Union seems either oblivious to or disinterested inward the real existent suffering some of their policy actions are inflicting on existent people, too in that location is picayune countries similar Hellenic Republic or Italy tin do almost it, every bit they receive got relinquished their sovereignty. If it had its ain currency too key bank, Hellenic Republic would non receive got to hold out beholden to the whims of European Union policymakers, too would non receive got to endure the ignominy of beingness forced unnecessarily into a debilitating depression. It is no wonder Euroskepticism is rising inward Europe - it is non without justification.
A preferable selection to a breakdown inward the Eurozone, notwithstanding (which too has many positive features), would hold out an European Union policy trunk that was to a greater extent than sensitive to the needs of its ingredient members, to a greater extent than flexible, too to a greater extent than democratically accountable. Italy has said it is attempting to reform the European Union from the inside, rather than leave of absence the European Union (Greece too attempted this, but was stonewalled; Italy, however, is a larger economic scheme too so carries greater influence), which would hold out the preferred option. One tin only promise that Brexit acts every bit a wake upward telephone telephone for the European Union governing bodies, too reminds them that their policy agenda tin only stray so far, for so long, from democratic preferences earlier a political revolt volition occur.
**The job amongst this policy option, however, is that it is hard to consider how it would non receive got the resultant of adversely impacting Greek banking concern capital. The initial draft was for banks to transfer (underprovisioned) bad debts at majority value, inward telephone commutation for relinquishing some of their DTAs. However, the value of these DTAs is carried on banking concern ease sheets, too forms a role of capital, so these transactions overall would hold out upper-case missive of the alphabet dilutive.