Greek crisis crashes on to NZ shores

The Greek sovereign debt crisis has claimed its first New Zealand victim.

ANZ New Zealand has been forced to defer its first euro-denominated covered bond issue due to market volatility arising from Greece's financial crisis, as the country once again goes cap in hand to the European Community for a €12 billion ($21 billion) bail-out.

Greece's sovereign debt woes have weighed heavily on market sentiment in Europe and around the world, making debt more expensive for any institution wanting to raise money there.

"Following a successful roadshow, ANZ New Zealand has decided to defer the issue of a euro-denominated covered bond and reassess market conditions after the summer given the current market volatility and its limited funding needs," a spokesperson for the bank said.

One senior banker, who did not want to be named, said conditions in Europe were not conducive for Australasian entities to raise funds.

He said ANZ was most likely aiming to raise around €1 billion from the issue, similar in size to covered bonds already issued in this market by BNZ and Westpac New Zealand.

"There has been a period of market-unsettling events, which has caused much of Europe to become risk averse and charge a much higher price for debt than [normal]," the banker said.

He doubted that the ANZ's failure to raise funds was likely to have been a major setback for the covered bond market, which is a relatively new but important method of funding for New Zealand banks.

"This is the new 'normal' in a post global financial crisis world," he said. "All issuers, particularly those in New Zealand, need to be more nimble and flexible in their funding in order to get in and out," he said.

New Zealand banks have been raising billions of dollars by issuing covered bonds. Covered bonds are debt securities backed by the cash flows from a specific pool of mortgages or other loans.

They differ from standard bonds as investors have specific recourse to the assets that secure, or cover, the bonds in the event of default.

Every covered bond issued by a bank effectively subordinates the claims of unsecured debt-holders, leaving fewer assets available to settle their claims in the event of a bank failure. In New Zealand's case, the Reserve Bank has limited the issue of covered bonds to up to 10 per cent of a bank's assets.

Euro zone governments have agreed to reinforce bailout funds to boost confidence in their ability to stop the crisis from taking down other countries and to help Ireland and Portugal emerge from their debt holes.

Greece's financial life support from Europe, meanwhile, depends on it taking new deficit-cutting measures.

After days of political chaos, the government in Athens has to survive a confidence vote - scheduled for this morning - and then get its austerity plan through Parliament. To make sure that happens, euro zone ministers have delayed crucial new loans until after the parliamentary vote.

If the Greek Parliament approves the austerity measures - worth about €28 billion on top of an unpopular €50 billion privatisation programme - then euro zone finance ministers will gather again on July 3 to approve the next, critical €12 billion instalment of Greece's bailout loans.

The country's European creditors and the International Monetary Fund are also pushing for the main opposition party to support the measures, which have already sparked street protests and forced Prime Minister George Papandreou to reshuffle his Cabinet.

Beyond that, much more remains to be done, as officials conceded Greece will probably need a second bailout of about the same size as the €110 billion it got from the euro zone countries and the IMF last year.

Many economists question whether Greece can get out of its crisis without restructuring its €340 billion debt load by making creditors take less than they are owed. That's an option EU officials have so far ruled out for fear of the potentially disastrous impact on financial markets.