Greek Government Presents Bank Recap Bill as ECB Test Looms

Greece’s government submitted a bill setting the rules for the recapitalization of the nation’s battered banks on Friday, as lenders sought to address shortfalls from minimum regulatory capital requirements through bond swap offers.

   Common shares, preferred shares, as well as other financing instruments, including unsecured senior liabilities, can be bailed in before a financial institution is eligible to use the public backstop of the state-owned recapitalization fund to cover its shortfall, according to the draft bill posted on the Greek parliament’s website.

   The European Central Bank is set to announce the results of a so-called comprehensive assessment of the books of Greek lenders on Saturday. This is likely to show a total combined capital hole of about 15 billion euros ($16.5 billion) for the country’s four biggest banks, half of which will have to be covered through public funds, Managing Director of Teneo Intelligence Wolfango Piccoli wrote in note to clients on Thursday.

   The ECB’s assessment comprises of an asset quality review of the balance sheets of National Bank of Greece SA, Piraeus Bank SA, Eurobank Ergasias SA and Alpha Bank AE, and a “stress test” of the findings under two different macroeconomic scenarios. Lenders will ask their shareholders and bondholders to voluntarily offer to plug any holes identified, before resorting to a 25 billion-euro state backstop. Taxpayers’ funds will come from euro-area emergency loans under Greece’s latest bailout agreement.

   The state-owned Hellenic Financial Stability Fund will acquire shares with full voting rights in Greek lenders in exchange for its participation in any capital-raising actions, according to the draft law. The price of the new shares will be set through a book-building process carried out by each financial institution, with no rights offering for existing shareholders. The fund can also cover part of the hole through contingent convertible securities, with the mix between shares and so-called CoCos subject to approval by the Greek Cabinet.

   The bill, which will be put to a vote in the Greek parliament on Oct. 31, gives the HFSF’s representative on bank boards the power to call a general shareholders meeting, limit executive pay, or block any other decision which can potentially endanger deposits. Salaries of bank managers can’t exceed the pay of the governor of the Bank of Greece and credit institutions aren’t allowed to distribute bonuses to board members while their banks receive state aid.

Πηγή: bloomberg.com