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UPDATE 1-European bank shares dip after Greeks reject bailout terms
July 6, 2015 / 7:48 AM / 2 years ago

UPDATE 1-European bank shares dip after Greeks reject bailout terms

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LONDON, July 6 (Reuters) - European bank shares fell almost 2 percent on Monday after Greeks overwhelmingly rejected conditions of a rescue package from creditors, throwing the future of its banks and its euro zone membership into doubt.

Greece’s banks could run out of cash within days and the European Central Bank’s (ECB) decision about whether to extend emergency liquidity will be crucial. The ECB is due to meet on Monday.

“The banking system will likely remain frozen and the paralysis in the Greek payment system will have an increasingly negative impact on real economic activity in the coming weeks,” said Ronit Ghose, analyst at Citi. He said Greek banks could easily require an extra 10 billion euros ($11 billion) of liquidity if a period of limbo continued.

Banks across Europe were hit by the threat that Greece’s problems could spill over to other countries and derail an economic recovery, especially in other peripheral euro zone countries.

The Stoxx Europe 600 banks index was down 1.7 percent at 209.7 points, after falling as low as 209.1.

Shares in Italy’s Unicredit and Intesa Sanpaolo were both down about 3 percent, and Monte dei Paschi fell 5 percent.

Spain’s Santander and BBVA ; France’s BNP Paribas and Societe Generale, and Germany’s Deutsche Bank were all down about 2 percent.

The resignation of Greece’s finance minister could make a deal with creditors more likely and avoid the country’s exit from the euro zone, analysts said.

But Greece’s banking system is on the brink of collapse, with estimates its four top banks have less than 1 billion euros of liquidity remaining, and could need nationalising.

The ECB is likely to maintain emergency funding for Greek banks at its current restricted level, people familiar with the matter said on Sunday, which will see lenders run out of cash soon.

That is despite capital controls being imposed last week to stem the outflow of cash from the banks, which have lost about 40 billion euros of savings this year, or a quarter of deposits.

Banks are expected to stay shut for the foreseeable future, and Athens could need to start printing money when they do re-open. A new financial system may need to be built, with banks nationalised and transformed into new lenders as part of a multi-year workout, analysts and restructuring sources said.

The exposure of overseas banks to Greece is relatively modest, after lenders, notably those from France and Germany, sold businesses and scaled back their Greek assets in the past four years. But investors are worried the crisis could drive up borrowing costs for governments and companies and increase losses from bad loans.

$1 = 0.9048 euros Reporting by Steve Slater; Editing by Matt Scuffham and Mark Potter

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