Banks reaffirm backing for EU agreement ' IIF

The worlds biggest financial firms pledged support for a proposed exchange of Greek government bonds even after Prime Minister George Papandreous referendum threatened to derail the deal.Bloombergreported that the Institute of International Finance, a lobby group for more than 450 financial firms, last week reached an accord with the European Union for private bondholders to accept a 50 per cent cut in the face value of their Greek government debt.If voters reject the EU-sponsored plan in a referendum, Greece would risk defaulting. That could put banks at risks of greater losses, and raise concern that contagion will spread to Italy and Spain.We will work closely with the Greek authorities, euro- area officials and other relevant parties to agree on, finalise and move toward implementation of the details of the voluntary private-sector involvement, the Washington-based IIF said in an e-mailed statement on Tuesday.The agreement was part of an EU plan that includes recapitalising the regions banks and boosting the bail-out fund to one trillion euros ($1.4tn) to stem the debt crisis.European bank stocks slumped the most in more than two months today, erasing the indexs entire gain since European leaders announced the rescue measures on October 27. Frances Societe Generale SA, National Bank of Greece SA, Milan-based Intesa Sanpaolo SpA and Commerzbank AG of Germany led the Bloomberg Europe Banks and Financial Services Index seven per cent lower, the steepest drop since August 18.Investors who take part in the agreement will exchange their existing Greek bonds for new ones at 50 per cent of face value. At the same time, the risk associated with the new bonds will be shared between the Greek government and a AAA-rated issuer, such as the revamped European Financial Stability Facility.Managing director of the IIF, Charles Dallara, told reporters in Washington on Monday that he expected participation rates in the debt exchange would be very, very high and the process would move forward quite promptly here.
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