A busy weekend is in store for the Greek banking system as the country’s four largest banks have urgently convened extraordinary meetings to put new capital raising measures to shareholder vote.
The meetings of Alpha Bank, Piraeus Bank, Eurobank Ergasias and National Bank of Greece, which will take place on November 14th, 15th, 16th and 17th, respectively, have been convened following of the results of the European Central Bank’s latest comprehensive assessment published on October 31, 2015, which highlighted a total capital shortfall for the four banks (under the so-called “adverse scenario”) of €14.4 billion.
Back in August, an agreement was finally concluded between the Greek government, the Eurogroup and the European Stability mechanism on a new program of financial support for the Greek state up to an amount of approximately €86 billion, which includes a buffer for the Greek banking sector of up to €25 billion. The ECB assessment was requested as a result, and focused exclusively on the recapitalization of the Greek banking system, comprising an asset quality review and stress tests.
Overall, Alpha Bank fared best under the assessment with its capital shortfall equal to €0.26 billion under the baseline scenario, the lowest reported of the four banks. On the other side of the scale, Piraeus Bank reported a capital shortfall of €2.21 billion and €4.93 billion under the baseline and adverse scenario, respectively. Though significant amounts, perhaps some comfort can be taken in knowing that the banks came in €10 billion under what has been set aside for the sector under the new program.
Attention now turns to the measures put forward by the four banks, all of which involve significant rights issues. While the Hellenic Financial Stability Fund (the “HFSF”) is on hand to mop up any remaining capital shortfall, emphasis is firmly on encouraging private investor participation thanks to recent amendments to Law 3864/2010, which governs the role and responsibilities of the HFSF. This could prove a challenge, not only given current market conditions in Greece but also since all four banks will be simultaneously attempting to attract private investors. The time-frame also proves demanding; each bank aims to complete its recapitalization by year-end in order to avoid the impending bail-in tool which comes into effect on January 1.
Given the conditions facing these banks, strong shareholder approval is likely to be in the cards. Whether these measures will be enough to secure a bright future for the Greek banking system remains to be seen.