Shares in Piraeus Bank, one of Greece’s four biggest lenders, tumbled on Friday after it said was it was unclear if the European Central Bank would allow it to pay interest on some of its convertible bonds, a move that would heavily dilute its private shareholders.
Piraeus shares were down 10% in morning trade and have now lost close to half their value this month due to concerns about the bank’s capital base.
Central to the concerns are its capital-contingent convertible bonds, known as CoCos, which were issued in 2015 to boost capital and are held solely by the country’s bank rescue fund HFSF.
Piraeus Bank said in a bourse filing on Friday that it has asked the ECB’s regulatory arm, the Single Supervisory Mechanism (SSM) to approve an interest payment of 165 million euros ($195 million) on the bonds, which is due on Dec. 2, and that the payment can be absorbed by the bank.
The SSM’s decision is expected in November, it said, however, an approval “is not certain” following SSM’s recommendation to European banks not to distribute capital amid the ongoing coronavirus crisis.
The ECB declined to comment on the issue.
If Piraeus is not able to make the payment, then the bonds would be converted into equity, meaning HSFS’s stake in the bank would jump from around 26% to more than 60%.
At 1311 GMT Piraeus shares were down 4.6% at 0.62 euros per share, trimming earlier losses.
A senior Greek official said that officials from HFSF, the Greek government and Greece’s central bank discussed the issue at a meeting on Thursday and that the government was considering bringing in legislation that will allow HFSF to participate in Greek banks’ future right issues.
Under current legislation, HFSF cannot participate in banks’ rights issues to avoid propping up banks.
An Athens-based trader said shareholders’ concerns escalated following a report on Greek website Banking News on Friday that the ECB will not give its approval for the payment next month.
Shares also dived earlier this week after Greek financial news website euro2day reported that three private shareholders, owning a total 19.8% stake in Piraeus, have proposed a capital increase of 800 million euros.
The bank said on Monday in response to the euro2day report that it had no plans to proceed with a capital increase. It says its total capital ratio stands at 16.1%, higher than supervisor’s 2020 requirements of 11.25%.