The Greek parliament approved legislation on Saturday that will pave the for a €14.4 bln recapitalisation plan of its banks, admittedly far less than the €25 bln that the international lenders had set aside to bail out the loan-riddled institutions.
The decision follows the European Central Bank “stress tests” that noted the shortfall based on its ‘adverse’ scenarios of the four major banks – the National Bank of Greece, Piraeus, Alpha Bank and Eurobank.
The parliamentary bill states that state-controlled HFSF bank rescue fund will have full voting rights on any shares it acquires from banks in exchange for providing state aid, subject to a deal struck with the Cabinet.
The capital gap was created mainly by the growing number of Greeks unable or unwilling to repay their debts, with the total of non-performing loans rising by €7 bln to 107 bln. Almost 57% of the loans made by Piraeus Bank, the bank which fared worst, are at risk, the ECB test showed.
But billionaire investor Wilbur Ross who is a major shareholder in Eurobank, as well as Bank of Cyprus, said on Saturday that diluting shareholders of the banks in any recapitalisation could turn off private investor interest.
"In view of the volatility of politics in Greece, investors will not be comfortable with committing new equity capital to banks that are effectively nationalised," Ross, chairman and chief strategy officer of WL Ross investment company, said in a statement.
He said this applies particularly in the case of Eurobank, the only one of the four big banks that is majority owned by the private sector.
"In view of how well Eurobank performed in the ECB analysis, there is clearly no justification to interfering with its management or governance," he said.
The ECB's health check showed that Eurobank, which is 35.4% owned by the bank bailout fund HFSF, needs to cover a capital shortfall of €2.12 bln – the lowest among the four lenders,
"Since it was the actions of the government that caused the imposition of capital controls and since these in turn have led to the need for equity, it would be nonsensical for the government now to dilute shareholders at share prices that are a small fraction of the underlying value," he said.
"Doing so will endanger the success of the private sector financing and reduce the likelihood of investor participation in the forthcoming privatisations."
Eurobank said it is confident it can cover the capital shortfall, its Chief Executive Fokion Karavias said on Saturday.
"The Comprehensive Assessment by the SSM/ECB ranks Eurobank as the Greek bank with the lowest, and fully manageable, capital needs under the stress test adverse scenario," he said.
The ECB health check showed that it has a capital shortfall of €2.12 bln, under the adverse scenario of the stress test.
"We are confident that, despite the challenges, we will succeed," Karavias said.
Meanwhile, Piraeus Bank reported a loss of €635 mln for the three quarters of the year as provisions for bad loans continued to weigh on its bottom line.
The bank took credit-loss provisions of €2.12 bln in the January-to-September period, down from 3.19 bln in the same period last year.
Piraeus said non-performing loans reached 40.5% of its book at the end of the third quarter, up from 39.4% in the second.
The ECB’s stress test showed that Piraeus needs to cover a capital shortfall of €4.93 bln under the adverse scenario of its stress test.
