Greek banks get set to recapitalize with draft bill to be voted on Saturday

The new draft bill on bank recapitalization will be voted by Greek Parliament on Saturday night. The bill envisages that all actions should have been completed ahead of the January 1, 2016, bailout so as to avoid any risk of a bailout in deposits.

The community directive BRRD (Bank Recovery and Resolution Directive) states that all deposits up to 100,000 euros are fully guaranteed in EU member states from January 1, 2015, and in Greece from January 1, 2016.

Meanwhile, the European Central Bank will release the results of a stress test round of the country’s four systemic banks on Saturday. Two scenarios for the financial needs of each bank will be examined: (1) the base line scenario, (2) and the adverse one. Sources point that the base line scenario will secure the capital needs of systematic banks by private capital. In the case that private investors fail to cover this sum, the bank would be put into resolution.

The Greek government and its creditors have agreed to benchmark 25 billion euros for the recapitalization of banks. The part of the capital needed to cover the adverse scenario for each bank will be converted into common shares with full voting rights (in the previous recapitalization the shares acquired by the Greek state had limited voting rights).

The draft bill also envisages the Coco’s type of bonds (contigent convertible bonds). These are optional convertible bonds with high yield (8-10%), able to be converted to common shares with voting rights.

Finance ministry sources point to the government’s 2-pronged goal:
(1) the attraction of foreign investments;
(2) strong public participation in banks seeking future profits.

The draft bill foresees a new strong framework to increase transparency in banking. While previous recapitalization plans failed to resolve the non-performing loans issue, this time the problem will be addressed to ensure that this is the last recapitalization of Greek systemic banks.

The finance ministry said that European Bank for Reconstruction and Development (EBRD) will participate in the recapitalization scheme.

Details of Bank Recapitalization

Finance Minister Euclid Tsakalotos said on Friday that the government will specify the details of the bank recapitalization plan through an Act of Cabinet on Sunday. Details of the plan are to include the percentage of bank shares to be allocated to the Hellenic Financial Stability Fund (HFSF) as well as the percentage of the contingent convertible bonds (CoCos).

Speaking to the relevant Parliamentary Committee reviewing the bill, Tsakalotos explained that this procedure was deemed necessary so that it could be finalized by the marketing opening time on Monday so as to avoid speculative games.

Meanwhile, the Single Supervisory Mechanism (SSM) will announce the final data and the two scenarios for the bank recapitalization on Saturday.

General convergence

The first reactions of the conservative main opposition New Democracy Party and the Union of Centrists stated that they vote for the draft bill in principle whereas the centrist Potami prefered to wait to see what the final stand to be kept in Greek Parliament would be.

ND deputy Makis Voridis said that recapitalization is necessary. “We will not play with the money of depositors,” he said, underlining that his party will examine changes. On his part, Democratic Coalition deputy Ioannis Maniatis said: “We lost 30 bln euros on account of the government’s handling of banks.” He added that his party would vote in principle so as to protect depositors money.