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Citi Says Surprised By Concerns On Greek Economy

In a report dated 25th November, Citi attributes the recent losses of the Greek market to the fears on the weak macro situation and the difficulties in fixing it have been compounded by concerns on the high level of ECB funding by the Greek banks

Wednesday’s concern was on the ability of the banks to use the Greek government debt as collateral – in the event of a downgrade of the sovereign ratings.

“We are surprised by such concerns,” says Citi. It explains that under the current ECB regulations, it will need a significant 4-notch downgrade by S&P / Fitch and a 6-notch by Moodys (before the collateral cannot be used.)

“Such extreme, and in our view, unlikely events could have bigger issues for Greece’s ability to borrow and not just the banks. Despite the high macro risk we struggle to see how Greece will be allowed to fail in an EU/EMU context,” it notes.

The firm also points to a “Buy on Weakness” strategy - Bank of Cyprus, NBG, PPC, Hellenic Exchanges, Frigoglass, Jumbo Babyland and Terna Energy.
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