Open is­sues on re­cap­i­tal­iza­tion

Draft law tabled fails to clar­ify the main stick­ing points of the process that will be­gin from Mon­day

Kathimerini English - - Focus - BY YIAN­NIS PAPADOYIANNIS

Many cru­cial as­pects of the struc­ture of the re­cap­i­tal­iza­tion process re­main open even af­ter the tabling of the rel­e­vant draft law yes­ter­day in Par­lia­ment. The new frame­work also in­cludes clauses lead­ing to sweep­ing changes in the boards of banks and the Hel­lenic Financial Sta­bil­ity Fund (HFSF), with the par­tic­i­pa­tion of tech­nocrats with many years of ex­pe­ri­ence. It also pro­vides for the par­tic­i­pa­tion of in­sti­tu­tional in­vestors in co­op­er­a­tive banks, which may also be re­cap­i­tal­ized by the HFSF.

The gray zones in the bill con­cern the fate of the pre­ferred shares that the state holds, the ex­tent of the im­pact on bank bond­hold­ers in case state aid is re­quired, and the ra­tio of con­tin­gent con­vert­ible bonds (Co­Cos) to com­mon shares through which the HFSF will cover its par- tic­i­pa­tion. Th­ese are cru­cial is­sues that have to be clar­i­fied as they may well dis­suade in­vestors from tak­ing part in the share cap­i­tal in­creases.

The gen­eral pic­ture is that lenders will need to cover their en­tire cap­i­tal re­quire­ments as they emerge from the ad­verse sce­nario of the stress tests. In prac­tice, they must at least cover the amount to emerge from the base­line sce­nario: If a bank cov­ers its en­tire cap­i­tal needs, it will main­tain its pri­vate char­ac­ter. If it only cov­ers the base­line sce­nario re­quire­ments, then the Euro­pean author­i­ties will pro­ceed to spread­ing the losses to bond­hold­ers (with ju­nior or se­nior bonds), and the im­pact will de­pend on the level of the state aid a bank will re­ceive: The greater the aid, the greater the im­pact (i.e. hair­cut) on bond­hold­ers will be.

The draft law also leaves open the ra­tio of Co­Cos to shares through which the HFSF will par­tic­i­pate.

701.22

1.1017 This will now be de­ter­mined by a min­is­te­rial de­ci­sion in the com­ing days, but Kathimerini un­der­stands the ra­tio to be 50-50.

The bill fur­ther pro­vides for top bankers to be ap­pointed only if they have not served as prime min­is­ters or min­is­ters or in other se­nior gov­ern­ment po­si­tions, which rules out sev­eral cur­rent bank ex­ec­u­tives, in­clud­ing the head of the Hel­lenic Bank As­so­ci­a­tion and Na­tional Bank, Louka Kat­seli.

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