European bank stocks skyrocketed Thursday on news that a European Union emergency summit has crafted a plan to aid Greece without any new taxes on banks.
The plan taking shape in Brussels will allow Greece to partially default on its debt while a European stabilization fund would simultaneously extend further credit to Greece, buy its bonds and recapitalize impaired banks.
The lifeline to Greece, and to banks with exposure to debt that cannot be fully repaid, buoyed European bank stocks. The STOXX Europe 600 Banks index surged 4.09%, with shares of banks with the greatest exposure to Greece more than doubling the group’s performance.
The National Bank of Greece (NBG) gained 10%, while Italy’s Intesa Sanpaolo (ISP) and Unicredit (UCG), and Germany’s Commerzbank (CRZBY) were all up more than 8 percent. At midafternoon, some of these stocks were trading higher on U.S. markets, with Commerzbank up nearly 11%.
Terms of the Greek rescue plan were not fully ironed out, but elements of the draft deal included a reduction in the interest on loans to Greece from 5.5% to 3.5% and a doubling of the repayment time to at least 15 years. A key breakthrough in the summit was a willingness to accept a “haircut” for private investors, which the European Central Bank had opposed and which U.S.-based credit agencies said would constitute a default.
By lightening Greece’s debt load and making it easier for Greece to pay through lower rates and a longer repayment term, Euro zone leaders appear to be betting that a “selective default” can be made tolerable to banks and investors exposed to Greek debt.