Piraeus bond sows seeds of Greek revival but capital demands loom

Piraeus Bank's comeback to the public bond market – the first from a Greek bank in over four years – has fueled hopes that its lenders are on the road to recovery, but capital demands are looming as the next big challenge.

The 5 percent coupon, 5.125 percent yield, six times subscribed order book and near 40bp secondary spread performance on the 500 million euro senior unsecured deal mark a watershed moment for Greek lenders that once saw their paper trading around the 20 percent mark.

Greece is the final frontier in the eurozone crisis recovery, with its banks having been resolutely locked out of the wholesale markets. Irish and Portuguese banks have made giant strides over the past year, issuing covered bonds and senior debt, as well as hybrid capital.

However, a recent health check to see whether last summer's 28 billion euro recapitalization of the four top banks had left them with enough cash to withstand rising loan losses exposed gaping capital holes that need to be filled.

National Bank, the country's largest bank by assets, has a capital need of 2.18 billion euros, while No.3 lender Eurobank's shortfall is 2.95 billion euros. Piraeus and Alpha Bank, on the other hand, have smaller capital deficits of 425 million euros and 262 million euros, respectively, according to Reuters.

"[The senior deal] is a great result for Piraeus but the real test for country's banks will be their ability to raise capital and pay back government participation capital," said Eva Olsson, research analyst for financials at Mitsubishi UFJ Securities.

"A capital increase will encourage secondary performance in this deal and prompt other banks like Alpha Bank and NBG to do follow-up transactions."

Investors should get their money...