Piraeus Bank will be the focus of attention in the credit sector for the next few months after the Hellenic Financial Stability Fund rejected stakeholder John Paulson’s proposal for a share capital increase on Monday. As a result, by end-2021, the lender will have been nationalized and reprivatized. If all goes well, it will make some more decisive moves for the streamlining of its portfolio using a “bad bank.”
According to two sources familiar with the month-long developments, the first key point for Piraeus will be the upcoming verdict of the European Central Bank’s Single Supervisory Mechanism (SSM) on the bank’s demand for the payment in cash of its contingent convertible bonds (CoCos) coupon worth 165 million euros. That decision is expected on November 16 or 17.
The same sources believe the SSM will reject the bank’s demand, either on the pretext that this would constitute the payment of dividend during the pandemic, which is not allowed, or that the bank’s assets should not be liquidated. The real reason will be that the European banking regulator realizes the pending issue of CoCos must be stopped.
If the response is indeed negative, the CoCos will turn into shares, taking the HFSF’s holding in Piraeus from 26.5% today to 61.3%. As the nationalization of a bank is hardly an enticing prospect for any of the creditors, the SSM or the government, other options have been discussed, but all had legal complications, so it has become clear that the issue of CoCos will have to end. That was also the direction of Paulson’s proposal, although that would damage the HFSF and taxpayers if implemented.
If the nationalization does take place, it will be for a small period, with procedures toward a share capital increase starting immediately, so as to strengthen the participation of private investors in the bank, along with its loans shifting to the “bad bank” the Bank of Greece is planning.