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Eurobank official proposes better incentives for investors in Greek recap

By George Georgiopoulos

Greece needs to offer sweeter incentives to attract private investors to take part in the recapitalization of its banks and keep the lenders out of state hands, the deputy chief executive of its third-largest lender said.

Battered by the debt crisis, Greece's four big banks are being rescued with 27.5 billion euros in funds, most coming from the European Union and International Monetary Fund.

The banks must also raise part of that figure from the market to avoid being nationalised, but the Eurobank executive said that goal would be tough to achieve, because the terms of the bailout make new investors subsidize past losses.

"At the end of the day banks must stay private, Eurobank Deputy CEO Nick Karamouzis said in an interview. Eurobank is in the midst of a takeover by bigger rival National Bank.

He said the government, EU and IMF lenders and the Hellenic Financial Stability support fund (HFSF) must rethink the entire process.

"We don't need to end up with state banks, he said.

He also lashed out at the tighter monitoring of Greece's banking industry imposed by international lenders, saying it could prove cumbersome. Greek banks are supervised by monitoring trustees who report to EU and IMF lenders, and representatives of the government and bank support fund sit on their boards.

"All interfere in one way or another in the management of banks, a type of bureaucracy that is not conducive to business development. There has to be a rethinking on all this heavy-handed supervision, Karamouzis said.

Foreign lenders have demanded that monitors ensure banks follow best practice. Greek media have also said the supervision aims to sever the ties between banks and the political system and big media organizations, some of which have received loans that might not have been granted under strict banking criteria.

Reuters published several in-depth reports last year on alleged mismanagement at Greek and Cypriot banks including Proton Bank, Piraeus Bank and Marfin Popular Bank, now renamed Cyprus Popular Bank.

Under the recapitalization plan, banks will issue new shares to achieve at least a 6 percent core Tier 1 capital adequacy ratio and issue convertible bonds, or CoCos, to boost that ratio to 9 percent.

The plan requires that private investors must take up at least 10 percent of the new shares for banks to remain private.

Karamouzis said the 7 percent annual coupon that banks will pay to the HFSF on their CoCos is expensive.

That heavy interest burden makes the banks less attractive to investors, who also face the risk their stakes could be diluted if the CoCos are converted to equity, he said.

Furthermore, asking private investors to participate in the share issues at the same terms as the HFSF could prove to be another disincentive, because part of this money will go to covering banks' negative equity, he said.

To resolve this, he suggested having private investors take part at a different price or at a later stage after the negative equity is covered by the support fund.

"I don't think new investors would put up money to cover yesterday's losses. They would be more willing to assume risks that have to do with a bank's future profitability, he said.

On a brighter note, Karamouzis said banks' ability to repo - sell and repurchase - non-Greek securities in international markets was improving, helped by the return of more than 12 billion euros of deposits in the past five to six months.

"Eurobank has repoed more than 2.5 billion euros of non-Greek securities and conducted several billions worth of interbank derivatives trades with foreign counterparty banks, he said.

"These are some first signs of improvement. I am convinced that after banks are recapitalized and as market sentiment improves, access to international capital markets could come at the end of 2013, before Greece (the government) returns to markets, he said.

Greek lenders have relied on central bank funding since losing interbank access because of the crisis.

In the last six months, Eurobank reduced its borrowing from the euro system of central banks by 25 percent, Karamouzis said.

[Reuters]

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