Greece sets mix of bonds, shares in state aid to recapitalise banks

Sun Nov 1, 2015 11:12pm GMT Related: BUSINESS

Reuters

Greece's bank bailout fund HFSF will provide state aid to recapitalise the country's main banks by buying a mix of contingent convertible bonds (CoCoS) and new shares the lenders will issue, the government said on Sunday.

The Hellenic Financial Stability Fund will supply 75 percent of the aid needed via CoCos and 25 percent in exchange for new common shares the banks will issue, the government's economic policy council said, finalising the architecture of the plan.

A health check of Greece's four main banks - National (NBGr.AT), Piraeus (BOPr.AT), Eurobank (EURBr.AT) and Alpha (ACBr.AT) - by the European Central Bank has shown that the lenders need to cover a 14.4 billion-euro (£10.2 billion) capital hole.

The ECB conducted an asset quality review (AQR) and stress tests under baseline and adverse scenarios for the country's economy and projected credit losses up to 2017. It announced the results on Saturday.

The exercise revealed that under baseline assumptions the banks need to plug a 4.4 billion-euro capital shortfall. Under the adverse scenario, the capital hole came to 14.4 billion euros.

If banks cover the baseline capital gap from private investors, state aid from the HFSF rescue fund to plug the rest up to 14.4 billion euros will be supplied based on the 75-25 percent ratio of CoCos and new shares, the government said.

Should banks fail to cover the baseline capital need from private investors, then the HFSF will supply funds "up to the amount needed to cover losses incurred or likely to be incurred in the near future" in exchange for common shares only, the government said.

The remainder of the aid will be pumped in based on the 75-25 percent ratio of CoCos and new shares.

"The government calls on the managements of the four systemic banks to make every effort to encourage the participation of domestic investors as well in the capital raising process," the government said.

(Reporting by George Georgiopoulos; Editing by Jonathan Oatis)