The battle against time for the recapitalization of Greece’s systemic banks has started as the new government will have to embark on a series of legislative measures in the next few weeks so as to complete this difficult project within schedule.
The bank recap will have to be completed by the end of December at all costs, because if for any reason this spills over to 2016 there is the genuine risk that a haircut on deposits will return to the table.
The new government will need to hurry, as the new bailout agreement provides for Parliament to pass the new recapitalization framework by October 15, so that the legislation is aligned with the operation of the Hellenic Financial Stability Fund (HFSF) and the new European directive on strengthening banks.
Preparations have been under way for this both in Greece and abroad in recent weeks. The interim government formed a Special Task Force with the participation of the Finance Ministry, the Bank of Greece and the HFSF. Its aim was to process a framework of options for the recapitalization so that the new government could make its decisions within schedule.
According to the timetable, the quality of the banks’ loan portfolios must be assessed by September 30. The stress tests will begin to determine the capital requirements of each lender in early October. Bank sources say that the stress test results will be issued toward the end of that month. Then banks will be give a few weeks to assess the interest of foreign investors in participating in the share capital increases. If the amount of capital required is not prohibitively high, banks will proceed to the capital increases, probably between November 15 and December 15.
It is particularly difficult to make any reliable estimates on the level of the capital be required, as it will mainly be determined by the macroeconomic estimates that the European Central Bank uses for the stress tests.
The picture so far shows the country’s creditors pressing for a recapitalization of a significant level, so as to provide a decisive shield to the banks’ capital bases, as well as to grant them greater flexibility for the management of their nonperforming loans.
On the other hand there are the investors and the bank stakeholders, who are pressing for the amount of the recapitalization to be such that it would not lead to a major reduction in the value of the old shares.