Two top banks in Greece likely to be nationalised

TWO of Greece’s biggest banks face nationalisation after failing to attract private investment and a surprise move by the state to suspend their merger deal hit shares yesterday.

Greek lenders National Bank and rival Eurobank plunged by as much as 30% yesterday after they confirmed their merger deal had been halted and they were unlikely to raise the private capital they need to stay out of state hands.

National bought 84.3% of Eurobank via a share swap in February, with a view to absorbing it as part of broader consolidation in the banking industry to cope with fallout from Greece’s debt crisis and deep recession.

But the deal raised the concerns of the “troika” of the European Commission, European Central Bank and International Monetary Fund that it would create a bank too big relative to Greece’s economy and make it difficult to sell in future.

“Their admission that they are unlikely to raise the required 10% from private investors is quite negative, (as) their shareholders may become owners of a nationalised bank,” said Maria Kanellopoulou, a Euroxx Securities analyst.

Greek government officials have said deposits in the banks will be unaffected by the deal’s suspension, in a bid to reassure jittery Greeks over a levy on bank deposits being included in a bail-out plan for Cyprus. Together, the two banks need ¤15.6bn in fresh capital to boost solvency ratios to levels set by the central bank after incurring losses from sovereign debt write-downs and impaired loans.

Both National Bank and Eurobank shares fell to record lows and hit their daily volatility limit, pushing the Athens bourse’s banking index down 17.4%. They later recovered, with Eurobank rising 10%, while National Bank recouped losses, but was down 9%.

“The market’s reaction reflects ownership dilution worries and uncertainty on what the future holds for both banks,” said Theodore Krintas, head of wealth management at Attica Bank.

Under a recapitalisation plan agreed

Their admission that they are unlikely to raise the required 10% from private investors is quite negative… their shareholders may become owners of a nationalised bank

with Greece’s international lenders, the Hellenic Financial Stability Fund, a state bank support fund, will supply most of the capital banks need, in exchange for new shares and contingent convertible bonds. But to stay private, banks must ensure that private investors buy at least 10% of their share offerings.

Both banks have told the central bank they are unlikely to meet this requirement, a finance ministry official said on Sunday, meaning they may fall under the stability fund’s control. That would mean about 40% of Greece’s banking sector will end up being controlled by the state, while the other two major Greek lenders will remain privately run.

National Bank’s 84.3% stake in Eurobank could be diluted down to a low single digit holding if the Hellenic Financial Stability Fund pumps in all the capital.

Both banks’ boards will convene today to decide on their recapitalisation, the two lenders said, confirming what bankers told Reuters yesterday, that the two would be recapitalised separately.

“The relevant regulatory authorities, with the consent of the management of both banks, have decided that National Bank and Eurobank will be independently recapitalised in full. The merger process is being suspended,” Eurobank said.

Rival lenders Alpha and Piraeus Bank have already announced share offerings, aiming to meet the required 10% privatesector take up.

Whether National Bank and Eurobank will be integrated eventually or run as stand-alone entities will be decided by the stability fund after their recapitalisation is completed. If the plan is dropped, Piraeus Bank will emerge as the country’s biggest bank. Reuters