Bank recap hurdle approaches

Bank recap hurdle approaches

The next government will have its work cut out in order to adhere to the super-tight timetable for the recapitalization of the banking sector, which must be completed within 2015. At the same time, political stability will be the decisive factor in getting private investors to participate in the share capital increases, as well as in the amounts required, which will apparently be quite significant.

Bank of Greece Governor Yannis Stournaras met with caretaker Finance Minister Giorgos Houliarakis on Tuesday to discuss the thorny issue of bank recaps. The risk of the old shares’ devaluation constitutes a particularly sensitive matter given that the banks’ main shareholder is the state, which contributed almost 24 billion euros to the previous recapitalization process.

This latest process, which is the third in the last couple of years, will in effect lead to the loss of existing capital, while the next government will also have to handle the question of how to retain the banks’ private character.

The new recap may reach up to 25 billion euros, while the bailout agreement provides for revenues of 10 billion euros from the banks’ privatizations, so if the previous recaps’ cost is added, the state stands to lose about 40 billion euros.

The timetable is so tight that the new Parliament will have to pass the recapitalization’s legal framework by mid-October. By the end of October, banks’ stress tests must have been completed and then the banks will have just a few weeks to try to draw funds from the private sector so as to preserve their private character.

Stournaras reportedly stressed to Houliarakis the need for the legislative preparation to be completed rapidly so that the recap can be concluded within December, otherwise the issue of a deposit haircut could again loom large. Mergers between any of the four systemic banks have been ruled out.

The central banker also informed the minister about a relaxation of the capital controls for enterprises, although there is as yet no plan to increase the weekly ceiling of 420 euros on cash withdrawals.

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