Greek bank shares fall on recap terms

Athens released the long-awaited terms of the recapitalisation framework for its banking sector, whose capital base was nearly wiped out after huge losses from a debt restructuring and loan impairments because of a deep recession.

The Athens Stock Exchange (ASE) banking index lost 13% in what brokers said was a delayed reaction to the dilutive nature of the recapitalisation scheme.

"The proposed recapitalization of Greek banks appears to fall well short of a comprehensive, long-term solution," said Peter Doherty, partner at London-based bond fund manager Tideway Investment Partners.

"The improvements in capital ratios are welcome but do not come close to the levels required to manage through the serious economic challenges facing the country."

Greece and its international lenders have earmarked money from the country's 130 billion euro bailout to shore up its viable banks.

Authorities have set up a capital backstop, the Hellenic Financial Stability Fund (HFSF) which will provide most of the new capital, buying the new shares and convertible bonds banks will be issuing.

This will make HFSF their biggest shareholder. The fund has already injected 18.5 billion euros into the country's four biggest lenders.

Based on Monday's cabinet decision, banks will issue new shares at a 50% discount to the average price 50 days prior to the offering.

The HFSF bank support fund will take up all of the contingent convertible bonds, or CoCos, the banks will issue.

The issue of CoCos, which will pay a 7% annual coupon with a half percentage point step-up feature every year, may precede or follow the share offerings.