The Wall Street Journal: Greece outlines bank recapitalization plan

ATHENS–Greece unveiled its bank recapitalization framework Friday and is expected to vote it into law Saturday evening, hours after the European Central Bank releases results of its health check on the country’s four big banks.

This will be the third capital increase of the country’s battered lenders since Greece’s debt crisis erupted in 2010 and has to be completed by the end of the year, before the deposit bail-in instrument becomes effective at the beginning of 2016.

According to the draft bill, the lenders will be able to use common or preferred shares, as well as other financing instruments to be bailed in.

The country’s state-owned recapitalization fund, the Hellenic Financial Stability Fund, will cover any part of the capital shortfall that isn’t covered by private investors via a combination of new shares and contingent convertible bonds that banks will issue. The new shares will have full voting rights.

The bill states that the stability fund will participate in the recapitalization of the banks over the coming months with significant funds.

The fund owns majority stakes in all Greek banks except Eurobank, in which it holds a 35.4% stake.

“The government aims to attract foreign investment, with the participation of the private sector [in the recapitalization], but also the state to maintain a significant stake in banks, so it can increase its profit when growth comes,” a finance ministry official said.

“The participation of the public should not be unlimited, as control in banks is needed but not at a stake that would prevent individuals to invest capital,” the official added.

Under the country’s third bailout agreement reached in mid-July, some EUR25 billion, or about $27 billion, of public money was earmarked to recapitalize Greece’s banks, which suffered major depot flight during the six-month-long negotiations between the Greek government and the country’s international creditors.

The ECB is expected to announce Saturday the results of the stress test for Greece’s four largest banks– National Bank of Greece SA, Piraeus Bank SA, Eurobank Ergasias SA and Alpha Bank AS–which will determine how much capital they need following the recent downturn in the Greek economy.

“Overall capital requirements are expected to be at around EUR15 billion, with the banks aiming to raise EUR5-EUR6 billion of that from private investors,” said Wolfango Piccoli, managing director of advisory firm Teneo Intelligence, in a note.

“Another EUR3 billion may come from bond swap offers. This would leave the total size of the required recapitalization from public funds at a manageable EUR7-EUR8 billion,” he said.

This story originally appeared on WSJ.com.

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