State to bolster Greek banks via CoCos, new shares - banking source
By George Georgiopoulos
ATHENS (Reuters) - Greece will unveil its bank recapitalisation plan by Friday aiming to vote it into law by Sunday, a day after the European Central Bank releases results of a health check on the country's four big banks, a senior banker said on Tuesday.
The European Central Bank is assessing the capital needs of National Bank , Piraeus , Alpha Bank and Eurobank .
The banks will be able to tap private investors to plug any capital shortfalls the ECB's asset quality review and baseline stress test will reveal.
Private investors can also cover any additional capital gap under the health check's adverse scenario. Greece's bank rescue fund, the Hellenic Financial Stability Fund (HFSF), will plug any part of the capital shortfall that is not covered by private investors.
"The HFSF will provide whatever state aid is needed via a combination of new shares and contingent convertible bonds (CoCos) that banks will issue," the banker close to the procedure told Reuters, declining to be named.
CoCos are bonds that can convert to equity to help to bolster a bank's capital in times of stress.
"The stress test results will be more manageable than initially expected," the banker said. "The aim of the regulators is to have as much private sector participation as possible."
The banks will be able to boost their capital by selling new shares to private investors without pre-emptive rights for existing shareholders, including the HFSF rescue fund.
"The new shares will have full voting rights," the banker close to the procedure told Reuters. "The exact mix of CoCos and new shares will be clarified later by a ministerial decree," the banker said.
The HFSF currently owns majority stakes in all Greek banks except Eurobank, in which it holds a 35.4 percent stake.
Under an international bailout agreed last summer, Greece is set to receive up to 25 billion euros (18 billion pounds) of public money to recapitalise its banks.
The HFSF pumped about 25 billion euros into the banks in June 2013, with the four lenders raising another 3 billion from private investors. A second recapitalisation followed in May 2014, when banks raised another 8.3 billion euros mostly from foreign institutional investors.
Under the new plan, the HFSF could see a significant dilution of its holdings.
"There will be no pre-defined minimum below which the stakes of the HFSF in the four banks will not be allowed to fall in the framework law," the banker said.
Banks will announce share offerings for up to the entire amount of their capital needs soon after the health check results are out.
"At those banks where the baseline scenario capital need will be more manageable, there will be an effort for the private sector to also cover the difference under the adverse scenario," the banker said.
"After the recapitalisation is completed the HFSF will end up with smaller stakes in the banks."
The ECB's assessment of the banks' books includes a review of their loan portfolios and stress tests using baseline and more adverse scenarios for the Greek economy to project possible credit losses up to 2017.
(Reporting by George Georgiopoulos; Editing by Michele Kambas and Jane Merriman)
