Greece’s Piraeus Bank Fails to Raise Enough From Private Investors

Capital shortfall determined through ECB stress tests for the Greek economy

The Wall Street Journal

By STELIOS BOURAS and  NEKTARIA STAMOULI

Nov. 22, 2015 8:06 a.m. ET

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ATHENS—Greece’s second-largest lender by assets, Piraeus Bank SA, said Saturday that it didn’t manage to raise all the funds needed from private investors following capital shortfalls outlined by the European Central Bank in October.

This means that Greece’s bank rescue fund will need to prop up Piraeus and Greece’s largest lender, National Bank of Greece SA, with at least €6.3 billion ($6.7 billion).

A health check performed on the country’s top four banks in October, which include NBG and Piraeus, together with Eurobank Ergasias SA and Alpha Bank AS, found them needing capital of up to €14.4 billion.

The checks were carried out using baseline and more-adverse scenarios for the course of the Greek economy until the end of 2017 to project possible credit losses.

Piraeus said that it raised €1.34 billion from the share issue, reaching the capital shortfall identified under the ECB’s baseline scenario.

But under the ECB stress test using the adverse scenario, Piraeus Bank needs capital of €4.93 billion. The remaining €3.59 billion capital gap required will be plugged by issuing new shares and contingent convertible bonds, or Cocos, to Greece’s bank rescue fund.

Late Thursday, NBG said that the amount arising from a debt swap with bondholders and private placement of shares would reach €1.16 billion. It said in a statement that it will also aims to raise an additional €300 million from a share offering to domestic investors and another €308 million of capital will come from further burden sharing, “entailing the conversion into ordinary shares of all of the bank’s outstanding capital instruments.”

If the domestic share offering, set to run until the end of the month is successful, then NBG may require €2.71 billion from Greece’s bank rescue fund.

This is the third capital increase for the country’s battered lenders since Greece’s debt crisis erupted in 2010, and it must be completed by the end of the year. From January, European rules on bank recapitalization potentially require bank depositors to take a hit.

The strengthening of their capital position is crucial in helping restore confidence in the country’s financial system after depositors withdrew billions euros from their accounts in the summer. It could also help pave the way for the gradual easing of capital controls introduced in June amid fears over the country’s future in the eurozone.

All four banks have launched offers to bondholders to swap junior and senior debt for new shares, as a means of generating equity capital to meet capital requirements.

Earlier this week, Alpha Bank said it managed to secure €2.74 billion it needs while Eurobank met capital demands by raising €2.12 billion through new shares. Neither lender will require any help from the bank rescue fund.

These two banks, Greece’s third and fourth largest respectively, both drummed up solid demand for their shares from investors who said their participation is reliant on Greece and lenders completing the review of the country’s bailout program.

Earlier this week, the two sides reached a deal on economic and financial overhauls Athens must deliver in exchange for its next slice of €2 billion financial aid and the disbursement of €10 billion in fresh loans that Athens can use to recapitalize its troubled bank.

Write to Stelios Bouras at stelios.bouras@wsj.com and Nektaria Stamouli at nektaria.stamouli@wsj.com