Open issues on recapitalization
Draft law tabled fails to clarify the main sticking points of the process that will begin from Monday
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.
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.