Greek Banks May Need Only $1.3 Billion of New Private Funds

  • Lenders to use new funds and debts swaps to cover shortfalls
  • Government expects banks to raise at least 4.4 billion euros

Greece’s four biggest banks may need as little as 1.2 billion euros ($1.3 billion) of new private funds to meet their expected contributions toward filling a capital shortfall, if they succeed in raising 3.2 billion euros through debt swaps.

The Greek government said it expects the banks to raise at least 4.4 billion euros of the 14.4 billion euros needed and will make up any difference between what they get privately and the overall goal. The debt-exchange total is based on Bloomberg calculations that assume all bondholders accept the banks’ debt-exchange terms.

Two of the lenders, Alpha Bank AE and Eurobank Ergasias SA, can surpass their expected contributions just through debt swaps, underlining how capital shortfalls identified by the European Central Bank were lower than anticipated. Piraeus Bank SA, saddled with the largest contribution target at 2.2 billion euros, and Alpha Bank have said they can raise enough funds to meet their goals.

“I am confident, based on recent contact with investors, that the bank will be able to source that money from the private market,” Piraeus Chief Executive Officer Anthimos Thomopoulos said in a call with analysts on Monday. “The banks will be recapitalized to the hilt.”

The four banks must submit plans for covering the shortfalls by Nov. 6. They can also take steps beyond converting bonds and selling new shares. National Bank of Greece SA is in advanced talks about selling Turkish unit Finansbank AS, which has a 3.4 billion-euro book value, Deputy Chief Executive Officer Paul Mylonas said on a conference call. The lender will also probably bail in about 200 million euros of U.S.-listed preference shares, as there isn’t enough time to make a swap offer under U.S. rules before the year-end recapitalization deadline, he said.

The ECB found a 4.4 billion-euro shortfall at the Greek banks using its baseline economic assumptions and a 14.4 billion-euro gap under the most pessimistic scenario. That’s less than the 25 billion euros set aside by Greece’s European creditors in July to support bank recapitalizations.

The central bank reviewed the Greek lenders’ assets and conducted stress tests to see how they would perform if the economy deteriorated further. Capital gaps should be “covered as much as possible with private means,” the ECB said.

Any contribution to recapitalizations made by the Greek government’s Hellenic Financial Stability Fund will be 25 percent in common shares. The remaining 75 percent will be through contingent convertible bonds that have an 8 percent coupon and which automatically convert into shares at 116 percent of their nominal value if the bank’s core equity ratio falls below 7 percent.

National Bank of Greeceon Monday became the last of the four lenders to outline terms for a debt-for-equity swap. Bondholders will probably accept the banks’ proposals, as otherwise notes are likely to be bailed in, said Moody’s Investors Service analyst Nondas Nicolaides. 

“The exchange offers could attract investors to voluntarily accept them rather than risk being bailed in at a later stage,” he said.

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