Foreign hedge funds eyeing gains in banks’ recap process

The positive climate in the credit sector is being consolidated with favorable developments in the share capital increases of the country’s main banks and the continuing restructuring of the industry, attracting the attention of many foreign hedge funds eager to benefit from the recapitalization of local lenders now that fears of a Greek default have subsided.

According to a report in Monday’s Financial Times, hedge funds are primarily looking into their possible participation in the recapitalization of Alpha Bank and Piraeus Bank, as many administrators believe that investing in the country’s lenders could be much more profitable than previous bets in the market’s recovery.

The main attraction here is the warrants – i.e. the purchase rights that investors in the recapitalization process will obtain that will be later cashed in when the state sells the stake that the Hellenic Financial Stability Fund (HFSF) is getting in this share capital increase. These warrants may well multiply gains for investor, with Merrill Lynch saying in a recent analysis of the Alpha increase that gains could reach as high as 1,000 percent.

Piraeus Bank said on Monday it plans to buy back 321 million euros of hybrid bonds as part of efforts to boost its capital base. Piraeus said that Barclays, BNP Paribas and Deutsche Bank would manage its buyback offer, which aims to boost its Core Tier 1 capital adequacy ratio by up to 156 million euros. The offer is expected to run until May 24.

Following National’s absorption of the healthy part of First Business Bank on Saturday, Probank, one of the sector’s smallest lender, was given a mid-June deadline to complete its own recapitalization, estimated at 90 million euros.