Bank recap needs estimated at 28 bln euros minimum

The amount of funds that the country’s four systemic banks will need in the context of their recapitalization has reached dizzying heights, having climbed to almost 28 billion euros following the announcement of nine-month results by National and Alpha on Friday.

With National stating it will need 9.7 billion euros and Alpha another 4.6 billion, while Eurobank Ergasias requires 5.8 billion and Piraeus 7.3 billion plus 500 million for its recently acquired ATEbank, the bill for the four lenders’ recapitalization process will come to about 27.9 billion euros.

On Friday National announced its nine-month losses amounted to 2.45 billion euros, while those of Alpha came to 711.8 million.

In fact the dependence of local lenders on state capital exceeds 30 billion euros, as the four main banks have already issued preferred shares worth 4 billion euros. At the same time their total capitalization amounts to 2.6 billion euros. In other words, through the issuing of common shares, they will have to draw 10 times as much capital as their current value, at least according to the market’s conventional wisdom.

The paradox is that almost all major banks have a negative net position, which means that the shareholders’ capital has not only been lost but, in theory, they owe more than 5 billion euros. To become sustainable again – i.e. to respond to the demand of the Bank of Greece for a capital adequacy ratio of 10 percent – they will need 28 billion euros up until 2014.

As bank officials have been saying since spring, the reduction of the level of capital needs is key to attracting private funds in the recapitalization. That has not happened. Nevertheless, senior bank officials remain optimistic and believe that in the next few months there will be some initiatives for the reduction of the funds required.

If this does happen, combined with an improvement in the general economic circumstances, it could lead to a success in share capital increases with the participation of private investors (covering at least 10 percent) so as to retain the private character of banks.

Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.