The European Commission’s decision to veto the Hellenic Financial Stability Fund’s participation in Eurobank’s share capital increase has alarmed the fund, which holds a 95 percent stake in the bank. The competition authorities in Brussels have demanded that the 3-billion-euro increase be covered by private funds by priority, with the HFSF reduced to an auxiliary role, participating only if the increase cannot be fully covered.
European Commissioner Joaquin Almunia sent a letter to Finance Minister Yannis Stournaras a few days ago highlighting the need for the Eurobank increase to be covered by the private sector. If that happens and the HFSF is forced to abstain from the process, its holding will go down to just 35 percent. Eurobank has already secured pledges from three strategic investors for a total of 4 billion euros – i.e. 1 billion more than the share increase.
Such a development would upset the plans of both the government and the fund, as the aim had been for the HFSF to cover a significant part of the increase so as to retain a 50 percent stake in the bank. The fund’s participation would have also assisted the government politically, as it would have curbed the reaction to the new share price.
HFSF officials have been applying great pressure on the creditor representatives over the past few weeks, stressing the importance of its participation in the Eurobank share capital increase. They underscored that abstaining from the process would considerably reduce the chances the HFSF – and by extension Greek taxpayers – would have of recovering the best part of the 5.8 billion euros spent on Eurobank’s recapitalization last year.
In contrast, if the HFSF retains a commanding stake in the lender, and forecasts for the country’s return to growth and the credit sector’s recovery prove correct, then the fund would later be able to sell its stake to private investors at a significantly higher price, thereby recovering most of the amount invested last year.