Greek Bank Investors Facing Wipeout as Nationalization Looms

Friday, 28 Oct 2011 07:19 AM

 

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Owners of Greece’s banks may be wiped out over coming months as the government prepares to take over the lenders after bondholders agreed to 50 percent writedowns on the nation’s debt.

Greek Prime Minister George Papandreou said yesterday that the government will likely buy shares in some banks as a result of a planned writedown, without giving details. The 30 billion euros ($42 billion) already set aside for Greek bank aid should cover the lenders’ needs, the European Banking Authority said.

For shareholders in Greece’s publicly traded banks, led by National Bank of Greece SA and Alpha Bank SA, there may be little left once the companies end up in government control. The six biggest lenders, which have assets of 380.2 billion euros and a combined market value of about 3.6 billion euros, are unlikely to attract investors willing to bet on a turnaround.

“Greek banks never had choice on whether to buy Greek bonds, and they’re now being punished,” said Andreas Koutras an analyst at InTouch Capital Markets Ltd., a fixed-income adviser in London. “It is possible equity valuations will go to zero.”

Most banks won’t have any alternative other than government aid, Dimitris Giannoulis, an analyst at Deutsche Bank AG in Athens, said in a phone interview.

“Foreign investors will continue to avoid Greece, and we’re likely to see retail investors who have dominated recent trading reduce bank exposure too,” Giannoulis said.

Shares Rise

Shares of the country’s six biggest banks, which value the lenders at about a quarter of their tangible book value — a measure of what shareholders can expect to receive if a company fails and liquidates its assets — rose yesterday amid optimism that expanded firepower of the rescue fund to 1 trillion euros may help stem the region’s crisis.

“Nationalizing the banks is extremely strong,” said Guillermo Nielsen, a former finance minister of Argentina. “Most government entities have a lack of leadership and management. Leaders should be careful not to take extreme measures because things can improve over time.”

Papandreou told reporters in Brussels yesterday that bank nationalization would benefit Greece.

“We had a long discussion on this with the Swedes who went through this process some years ago, who believe it was the best available and which had very positive results for both the Swedish banking system and the Swedish economy,” he said.

Swedish Example

Sweden nationalized two big banks in the 1990s. It still owns a stake in Nordea AB almost two decades after taking over its predecessor and merging it with another lender the government had nationalized.

If Greece nationalizes its banks, it will follow Ireland, which took control of five of its six largest lenders, including Allied Irish Banks Plc and Irish Bank Resolution Corporation Ltd., following the implosion of a domestic real estate bubble in 2007. The government was forced to seek an international bailout last year after injecting 62 billion euros into its banks over the past two and a half years.

Most Greek banks will need significant recapitalization, the terms of which remain unknown and subject to market conditions, National Securities, the brokerage arm of National Bank, wrote in a note to clients today. Lenders are likely to be given until June 30 to replenish capital.

Stability Fund

Under Greek law, the nation’s banks can apply for state aid if they can’t meet capital requirements and once they have attempted to raise capital by tapping new and existing owners. Banks that are publicly traded must show they tried to sell stock at a discount to their market value.

The state-backed Hellenic Financial Stability Fund, set up under a May 2010 European Union-led bailout, will inject capital that it receives. The fund is run by seven board members appointed by the nation’s central bank and vetted by the finance ministry. It will have board representation, with veto powers, at the banks it controls.

The next few days may be critical in deciding lenders’ immediate fate, according to UBS AG analyst Alexander Kyrtsis.

“The authorities are likely to closely monitor deposit balances over the next few days, and if there’s a concern that there might be outflows they may enforce recapitalizations immediately,” Kyrtsis said. “However, given the results of yesterday’s European summit and the second aid package to Greece, concerns are likely to abate.”

The balance of deposits held by businesses and households in Greek banks rose to 188.6 billion euros in August from 187.2 billion euros in July, according to an Oct. 6 statement from the Bank of Greece. It was the first rise this year and came after of a July 21 accord on a second Greek bailout.

Private Restructurings

A wave of private-sector restructurings triggered by the government debt writedown and a worsening economic outlook is likely to hit the banks in coming months. Greek lenders have about 228 billion euros of loans outstanding to Greek companies and individuals, central bank data show.

“You need to get the banks lending again because the next round will be private debt restructuring, so you need to make the banks stronger,” said Nielsen. “You need to keep the day-to-day business going.”

Banks are likely to sell assets, such as their profitable divisions outside the country, as well as attempt stock sales to avoid nationalization, Euroxx Securities SA, an Athens-based brokerage, said in a note.

Eurobank, Piraeus

National Bank, the country’s biggest bank, is the only lender with a chance of staying out of government hands, by selling Finansbank AS, its Turkish unit, according to UBS’s Kyrtsis. National Bank’s shares have fallen 68 percent in 2011.

EFG Eurobank Ergasias SA and Piraeus Bank SA will have the greatest capital needs, according to Deutsche Bank’s Giannoulis.

Piraeus Bank Chairman Michalis Sallas on Oct. 14 said Greece’s banks and pension funds had the most to lose by increasing bondholders’ losses to 50 percent.

Alpha Bank agreed in August to buy Eurobank and increase capital by as much as 3.9 billion euros backed by an investment from Paramount Services Holding Ltd., which represents one of Qatar’s most prominent families. Investors are scheduled to vote on the merger Nov. 4 and Nov. 15.

Spokesmen for National Bank, Alpha Bank, Piraeus Bank and Eurobank said executives weren’t available for comment.

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