National Bank of Greece Posts EU1.31 Billion Loss on Bonds

August 30, 2011, 12:18 PM EDT

By Maria Petrakis

(Updates with CEO comment in third paragraph.)

Aug. 30 (Bloomberg) — National Bank of Greece SA, the country’s biggest bank, reported a first-half loss after writing down its holdings of Greek government bonds.

The net loss was 1.31 billion euros ($1.89 billion), compared with a profit in the year earlier period of 146 million euros, according to a faxed statement from the Athens-based lender today. National wrote down the value of its bonds by 1.645 billion euros, according to the statement. Stripping out that figure, profit was 29 million euros.

“The Greek economy and banking system will continue to face formidable challenges in the period ahead,” Chief Executive Officer Apostolos Tamvakakis said in the statement. The completion of the private-sector contribution in the Greek government’s second financing program, which entails losses for bondholders, and a review of loan portfolios must be concluded before National Bank can determine its next strategic moves, he said.

National, the country’s oldest bank, is being challenged in Greece and the region by Alpha Bank SA’s takeover of EFG Eurobank Ergasias SA, announced yesterday. That combination, designed to ride out a deepening recession and the country’s sovereign debt crisis, will create Alpha Eurobank, the biggest bank in southeast Europe.

National Bank fell 22 cents, or 6.1 percent, to 3.37 euros in Athens trading, following a 29 percent surge yesterday.

Debt Writedown

European Union and Greek officials, including central bank chief George Provopoulos, have pressed the country’s lenders to form stronger groups that can survive a crisis that has depleted capital as bond prices slump, loan-losses mount and banks lose deposits. Lenders have been left reliant on funding from the European Central Bank.

National wrote down the book value of 9 billion euros of bonds eligible for inclusion in the debt swap that will help fund Greece until 2014. It also had provisions of 822 million euros for bad loans in the period as the country’s economy shrank under the weight of wage and pension cuts implemented in return for the country’s first 110 billion-euro bailout from European Union partners.

Without the bond markdown, National said it had a profit that was largely due to units in Turkey and southeast Europe.

Share prices in Greece’s lenders plummeted last week as the country grappled with a third year of recession and the government pursued negotiations on a second bailout package, which will entail losses for bondholders.

Deposits Decline

The bank reported deposits of 62 billion euros at the end of the first half, a 10 percent drop from a year earlier. The decline in deposits intensified in Greece in the second quarter with a reversal noted after EU leaders agreed on a second financing package for the country on July 21, the bank said.

Deposits in the country slumped by 21.4 billion euros since December 2010, or 10 percent, overall, according to figures from the Athens-based Bank of Greece, with the withdrawals forcing Greek banks to borrow more from the central bank as money markets remain shut.

National Bank said its Tier 1 capital ratio was 11.2 percent at the end of the period.

–Editors: Frank Connelly, Stephen Taylor

To contact the reporters on this story: Maria Petrakis in Athens at [email protected];

To contact the editor responsible for this story: Tim Quinson at [email protected]

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