By George Georgiopoulos and John O’Donnell
Greece on Friday put forward a bank recapitalisation bill that outlines how new funds will be pumped into its ailing banks to shore up their capital base, a day before the European Central Bank releases results of its health check on the big lenders.
The draft legislation, expected to be voted on Saturday, will set in motion a hurried attempt to attract investors to fill capital holes before European rules at the end of the year could push losses on creditors such as large savers.
Greece’s four big banks – National, Piraeus , Eurobank and Alpha – will likely need to gather up to 14 billion euros of fresh capital, banking sources have told Reuters, based on the ECB’s so-called comprehensive assessment.
The ECB’s health check included a scrutiny of banks’ loan portfolios and stress tests using baseline and more adverse scenarios for the course of the Greek economy to project possible credit losses up to 2017.
The tests seek to draw a line under the problems of Greece’s lenders, whose health has deteriorated amid a long-running dispute over reforms demanded of Greece for international support.
This culminated in a stand-off between leftist prime minister Alexis Tsipras and his country’s international backers that saw Athens almost run out of cash and tumble out of the euro.
It froze central-bank funding for Greece’s banks and forced controls on cash withdrawals. Although this stemmed a further haemorrhaging of savings, it squeezed the economy, making it harder for borrowers to repay loans.
Of an 86-billion-euro bailout of Greece, 25 billion euros is earmarked for banks.
Under the bill, Greece’s HFSF bank bailout fund will plug any capital gap beyond the ECB’s baseline scenario if banks cannot raise it in the market, by buying a mix of new shares and contingent convertible bonds (CoCos) they will issue.
The Hellenic Financial Stability Fund will have full voting rights on any shares it acquires from banks in what will be their third recapitalisation since 2013.
The exact mix of shares and CoCos the HFSF will buy from banks in exchange for providing state aid will be decided by the cabinet. Any new shares it acquires from banks will have full voting rights as opposed to restricted veto rights previously.
The draft legislation also bestows the bank rescue fund a more active role in the governance of the banks.
“The rescue fund…will systematically evaluate the managements of banks to ensure that they make the best use of the funds provided by the Greek taxpayer,” the finance ministry said.
Banks’ general assemblies will have 10 days to approve the new share offerings. Private investors cannot buy new shares at a cheaper price than what the HFSF will pay. The price of the new shares will emerge from a book-building process.
Under the bill, the rescue fund will not be able to sell shares in the banks at a price below their purchase cost. It also allows the HFSF to pump capital in smaller cooperative banks.