TEXT-S&P affirms 4 Greek banks ratings

Fri Mar 2, 2012 12:08pm EST

Overview	
     -- On Feb. 27, 2012, we lowered our long- and short-term sovereign credit 	
ratings on Greece to 'SD' (selective default).	
     -- We believe that rated Greek banks are likely to incur sizable losses 	
on their Greek government bond portfolios upon completion of Greece's recently 	
launched exchange offer. 	
     -- However, we read the Greek authorities' public statements as 	
indicating that sufficient public funds should be available to address 	
immediate potential capital and liquidity shortfalls.	
     -- We are therefore affirming our 'CCC/C' long- and short-term ratings on 	
the four banks that we rate--National Bank of Greece S.A., EFG Eurobank 	
Ergasias S.A., Alpha Bank A.E., and Piraeus Bank S.A. 	
     -- The negative outlooks reflect the possibility that we could further 	
lower the long- and short-term ratings on all four banks if we believe they 	
will default on their obligations, as defined by our criteria.	
	
Rating Action	
On March 2, 2012, Standard & Poor's Ratings Services affirmed its 'CCC/C' 	
long- and short-term counterparty credit ratings on four Greek banks--National 	
Bank of Greece S.A. (NBG), EFG Eurobank Ergasias S.A. (EFG), Alpha Bank A.E. 	
(Alpha), and Piraeus Bank S.A. (Piraeus). We have also affirmed our 'CC' issue 	
ratings on their hybrid securities. 	
	
The outlooks on the long-term ratings on the four banks are negative. 	
	
Rationale	
The affirmations follow our downgrade of the Hellenic Republic (Greece) to 	
'SD', on Feb. 27, 2012. Our downgrade of Greece was partly based on the Greek 	
government's bond exchange offer launched last week, which we believe will 	
likely lead to sizable losses for rated Greek banks. That said, based on Greek 	
government and EU authorities' public statements, we believe that sufficient 	
public funds should be available to recapitalize all the banks and enable them 	
to comply with regulatory capital requirements. The rating actions also 	
reflect our expectation that these banks' funding capacity and liquidity 	
position will likely not further deteriorate, based on the European Council's 	
statement that Greek banks will continue to receive financial support. Such 	
support in our view should allow these banks to maintain eligible collateral 	
for discounting through European liquidity support mechanisms, including the 	
Emergency Liquidity Assistance (ELA) set up at the Bank of Greece, even if the 	
relevant ratings on Greek sovereign debt are lowered to 'D' (default). 	
	
	
We assess the stand-alone credit profiles (SACPs) for all four banks at 'cc'. 	
Our 'CCC' long-term ratings on these banks show a two-notch differential from 	
their respective SACPs, indicating the uplift we factor in for extraordinary 	
liquidity support provided by EU authorities.	
	
On Feb. 24, 2012, the Greek government launched an exchange offer on its 	
outstanding sovereign bonds. According to the publicly available terms of the 	
swap, while the nominal value haircut on the bonds will account for about 	
53.5%, we currently estimate that the net present value potential losses could 	
be significantly higher and potentially reach a total of about 65%-75% of the 	
nominal initial value. In our view, the Greek banks we rate are directly and 	
significantly exposed--to varying degrees--to Greek country risk through these 	
rated banks' large government bond portfolios. We therefore believe that these 	
banks will likely incur sizable losses on their government bond holdings upon 	
completion of the deal, which would, in our view, substantially impair their 	
capital bases.	
	
According to Greek and EU authorities' public statements, however, public 	
funds will be made available to recapitalize all Greek banks if needed. In 	
this context, we understand that the European Central Bank (ECB; 	
AAA/Stable/A-1+), the International Monetary Fund (IMF), and EU authorities 	
have already allocated a total of EUR30 billion from the "first aid" package 	
provided to Greece to cover the banks' capital needs. Moreover, according to 	
Greek government public statements, we think that the total recapitalization 	
fund could be enhanced by an additional EUR10 billion to foster its capacity to 	
support banks under stress. Based on these statements, we have taken the view 	
that these facilities should backstop these banks' ability to continue meeting 	
their respective regulatory capital requirements once losses arising from 	
their Greek government bond portfolios are recognized. 	
	
Our ratings also reflect our view that Greek banks should be able to continue 	
pledging Greek sovereign debt collateral eligible for discounting at European 	
funding facilities--including the ELA set up at the Bank of Greece-- even if 	
the relevant ratings on Greek sovereign debt are lowered to 'D' (default) (see 	
"Greece Ratings Lowered To 'SD' (Selective Default)," published Feb. 27, 	
2012). We base our opinion on the European Council's statement that it will 	
offer credit enhancement to underpin the quality of pledged Greek sovereign 	
debt and therefore allow continued use of that collateral by Greek banks to 	
access European liquidity facilities.  	
	
Our current ratings on the four Greek banks continue to factor in a 'b+' 	
anchor, which draws on our Banking Industry Country Risk Assessment (BICRA) 	
methodology and our view on both the economic risk of the main countries where 	
they operate and the industry risk of Greece, where the banks are 	
incorporated. They also reflect our view of the banks' "adequate" business 	
position, "weak" capital and earnings, "weak" risk position, "average" 	
funding, and "very weak" liquidity, as our criteria define these terms. 	
	
Outlook	
The negative outlooks reflect the possibility that we could downgrade EFG, 	
Alpha, Piraeus, or NBG, if we believe they will default on their obligations, 	
as defined by our criteria. Taking into consideration what we see as a 	
meaningful possibility of default, there is an inherent CreditWatch with 	
negative implications associated with our 'CCC' long-term ratings (see "How 	
Standard & Poor's Uses Its 'CCC' Rating," published Dec. 12, 2008).	
	
We could lower the ratings on the four banks if their access to liquidity 	
support from extraordinary mechanisms set up by EU authorities, including the 	
ELA discount facility, is impaired for any reason, given that this support 	
currently underpins the banks' capacity to meet their financing requirements. 	
In this context, we also note that persistently high pressure on banks' retail 	
funding bases may lead to further deposit outflows, which could in our opinion 	
increase the need for Greek banks to receive additional extraordinary 	
liquidity support from European authorities. Should the banks' access to the 	
abovementioned liquidity support deteriorate, we would conclude that the four 	
banks are likely to default as defined under our criteria. 	
	
We could also lower the ratings on the four banks if we believe they are 	
likely to default, as defined by our criteria, due to any developments 	
associated with a substantial impairment of their solvency. This could happen 	
if, for any reason, Greek banks cannot access external capital support, or if 	
we consider such support as insufficient to allow the banks to continue 	
meeting regulatory capital requirements once the potentially large losses on 	
their holdings of Greek government bonds are recognized or the potentially 	
sizable credit impairments arising from lending portfolios are taken into 	
account. 	
	
	
The outlooks could be revised to stable if the risks we see to all four banks' 	
financial profiles abate, and if we perceive that extraordinary financial 	
support will likely enable them to survive without defaulting on any of their 	
obligations. 	
	
Ratings List	
Ratings Affirmed	
	
NATIONAL BANK OF GREECE	
	
National Bank of Greece S.A.	
 Counterparty Credit Rating             CCC/Negative/C     	
 Certificate Of Deposit                 CCC/C                	
 Preference Stock                       CC                 	
	
NBG Finance PLC	
 Subordinated*                          CC                 	
	
National Bank of Greece Funding Ltd.	
 Preferred Stock*                       CC                 	
	
*Guaranteed by National Bank of Greece S.A.	
	
	
PIRAEUS BANK	
	
Piraeus Bank S.A.	
 Counterparty Credit Rating             CCC/Negative/C     	
 Certificate Of Deposit                 CCC/C                	
	
Piraeus Group Capital Ltd.	
 Preferred Stock*                       CC                 	
	
Piraeus Group Finance PLC 	
 Senior Unsecured*                      CCC                	
 Subordinated*                          CC                 	
 Commercial Paper*                      C  	
	
*Guaranteed by Piraeus Bank S.A.	
	
	
ALPHA BANK	
	
Alpha Bank A.E.	
 Counterparty Credit Rating             CCC/Negative/C     	
 Certificate Of Deposit                 CCC/C                	
	
Alpha Credit Group PLC	
 Senior Unsecured*                      CCC                	
 Subordinated*                          CC                 	
 Commercial Paper*                      C                  	
	
Alpha Group Jersey Ltd.	
 Junior Subordinated*                   CC                 	
 Preferred Stock*                       CC                 	
 Preference Stock*                      CC      	
	
*Guaranteed by Alpha Bank A.E.	
	
	
EFG EUROBANK ERGASIAS	
	
EFG Eurobank Ergasias S.A.	
 Counterparty Credit Rating             CCC/Negative/C     	
 Certificate Of Deposit                 CCC/CC                	
	
EFG Hellas (Cayman Islands) Ltd.	
 Senior Unsecured*                      CCC                	
	
EFG Hellas Funding Ltd.	
 Preference Stock*                      CC                 	
	
EFG Hellas PLC	
 Senior Unsecured*                      CCC                	
 Subordinated*                          CC                 	
 Commercial Paper*                      C                  	
	
EFG Ora Funding Limited III	
 Senior Unsecured*                      CCC                	
	
*Guaranteed by EFG Eurobank Ergasias S.A.
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