Greek lenders Alpha Bank AE and Eurobank Ergasias SA expect to raise enough money from investors to cover capital shortfalls without state aid, while the government reached a deal with creditors that will help backstop the recapitalization of two other banks.
The terms of the government’s financing agreement will be submitted to the Greek parliament for a vote set for Thursday night, Finance Minister Euclid Tsakalotos said. National Bank of Greece SA and Piraeus Bank SA have said they will probably seek state aid as they try to plug part of their capital holes by tapping private investors.
The creditor deal, with representatives of the European Commission, the European Central Bank and the International Monetary Fund, was “absolutely necessary to prepare bank recapitalization,” EU Economic and Monetary Commissioner Pierre Moscovici told reporters in Brussels.
State aid to the banks will come in the form of common shares and contingent convertible bonds issued to the government-owned Hellenic Financial Stability Fund. HFSF will borrow the required funds from the European Stability Mechanism, subject to the fulfillment of the conditions detailed in Greece’s latest bailout agreement.
Alpha said in a statement that it received institutional demand greater than its 1.55 billion-euro ($1.65 billion) equity capital raising target. Combined with 1.01 billion euros in proceeds from a debt-to-equity swap, the bank has enough to cover a shortfall of about 2.6 billion euros identified in ECB’s stress test last month.
Eurobank’s capital increase attracted investors including Fairfax Financial Holdings and Wilbur Ross, who committed about 2 billion euros of capital via a share sale and a so-called liability management exercise, consisting of debt-to-equity swaps, according to an update on the sale seen by Bloomberg News. The lender is scheduled to close its book to bids on Tuesday afternoon, aiming to cover the full shortfall identified by the ECB.
Greek lenders cleared the hurdle of a pan-European review in 2014 thanks to capital increases of more than 8 billion euros and restructuring plans approved by the European Commission. Then their solvency was put to the test when the government of Alexis Tsipras rejected the terms attached to the country’s bailout lifeline. The standoff resulted in the imposition of capital controls and restrictions on ATM withdrawals, as well as a month-long forced bank holiday in July, before Tsipras finally capitulated to creditors’ demands.
The quarrel took a toll on lenders, which reported widening losses amid increases in bad loans, subdued economic activity, expensive emergency-funding requirements from the ECB, and strict limits on capital transfers. As they seek to raise fresh capital from markets for the second time in less than 20 months, uncertainty over the government’s talks with creditors damped investor interest.
Orders from investors for National Bank of Greece and Piraeus Bank’s share sales were coming in at the lowest price that the banks could accept, people familiar with the increase said on Monday. The bids offered for new shares reflect discounts of more than 90 percent compared to where the stocks currently trade, as the country’s two biggest lenders try to cover a combined hole of about 8.6 billion euros.
“In the summer, the pressure came from the threat of Grexit,” Tsakalotos said after announcing the deal with creditors. “This time it was the bank recapitalization, which created an asphyxiating framework on our side.” European and national rules on state aid to banks require “burden sharing” from stakeholders before taxpayer money is used.
Greek stocks rallied following the news of the creditor deal, with the benchmark Athens Stock Exchange general index closing up 2.2 percent. Bank shares fell 7 percent to a record low, bringing extending this year’s the decline to about 85 percent.