Eurobank Resorts to Hellenic Financial Stability Fund for Recap

Eurobank Ergasias SA (EUROB), one of Greece’s four systemic banks, abandoned efforts to raise a portion of the funds required to repair its capital from the private sector, meaning control of the bank will pass to the state.

Finding private investors to put up the 10 percent of the Athens-based lender’s 5.8 billion-euro ($7.6 billion) share capital increase is “technically impossible” given the uncertainty over the fate of Eurobank’s planned merger with National Bank of Greece SA, Eurobank said in an e-mailed statement today. The board decided instead to propose raising the full amount from the Hellenic Financial Stability Fund at an April 30 shareholder meeting.

Under the terms of Greece’s bailout from the euro area and International Monetary Fund, Greece’s four biggest and most important banks need to raise 27.5 billion euros through a mix of common equity and convertible bonds. Lenders that fail to raise 10 percent of the equity from private investors will cede management control to the HFSF, which administers 50 billion euros granted to the country to restore the banks’ capital strength.

National Bank’s takeover of Eurobank, announced in October, was put on hold on April 8 amid concern from the EU and IMF that the combined entity would be unable to reach the 10 percent threshold. Both banks were told to raise the required funds separately, even after the merger had proceeded to the point where National Bank owns 85 percent of Eurobank.

National and Eurobank teamed up last year in a bid to retain National’s dominance of the Greek market. The country’s banking system has been overhauled since lenders lost a total of 38 billion euros in Greece’s restructuring of sovereign debt last year, the largest ever.

Banco Comercial Portugues SA (BCP) announced earlier today that it would sell its Greek unit, Millennium Bank, to Piraeus Bank SA (TPEIR) for 1 million euros and contribute 400 million euros to the Greek bank’s capital increase as a condition of the sale. Combined with Societe Generale SA’s contribution of about 170 million euros after selling its Geniki unit to Piraeus, the deal means Piraeus will raise the 533 million euros it needs from private investors and avoid nationalization.

To contact the reporters on this story: Christos Ziotis in Athens at cziotis@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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