Greek banks seen struggling to get softer terms on cash injection

Thu Feb 28, 2013 9:41am EST

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* Banks lobby behind scenes on 27 bln euros recap

* Say terms deter private sector investors

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* Authorities likely to reject calls

By George Georgiopoulos

ATHENS, Feb 28 (Reuters) - Greek banks are lobbying behind the scenes to ease the terms on a vital 27 billion euros ($35.4 billion) cash injection, arguing that unless terms are loosened they will deter private sector investors and leave nationalisation as the likely outcome.

It looks like a tough sell.

Chances look slim that authorities who have the final say on the scheme will budge, seeing any concession as an unwarranted gift to private investors and leaving a potential funding shortfall that only state funds will be able to fill.

Yet state control of lenders could be negative, some bankers say, because it could leave them open to government interference which could ultimately harm their recovery.

For the Greek economy, battered by six years of recession, the fate of the four major banks is important because their lending will be important in helping revive growth.

But their prospects may hinge on whether private sector investors take part in the state-backed recapitalisation plan to restore their solvency. "At the end of the day banks must stay private," Eurobank Deputy CEO Nick Karamouzis said in an interview.

Worried the terms will not entice enough investors to keep the banks in private hands, bankers have quietly met with the bank support fund, the Hellenic Financial Stability Fund (HFSF), and sent letters to the central bank to press their case.

Their main demand is for the HFSF to cover banks' negative equity in a bid to sweeten the terms for private investors, who must cover 10 percent of the new shares offered to ensure the banks avoid nationalisation.

Under terms of the deal, if banks meet the 10 percent requirement the HFSF will provide the rest in exchange for common shares with restricted voting rights. Otherwise it will have full voting rights.

Banks also want an extension to the end-April deadline to complete the scheme.

"I don't think it's going to fly with the troika," said an official at the HFSF on condition of anonymity, referring to the European Commission, European Central Bank and the International Monetary Fund lenders.

MAJOR CHANGE

The official said demands to have the support fund cover banks' negative equity first before new shares are issued to investors would be a major change from the recapitalisation plan, making it impossible they would be granted.

"It would mean one shareholder, the HFSF, bears all of the loss and the other, the private sector, all of the upside," the official said.

But bankers fear investors may balk at buying new shares if part of their money would go to cover banks' negative equity, which would push the valuation multiple for Greek banks above 1 compared to other southern European peers, which trade at about 0.7 times book value.

"So why buy a Greek bank when an investor can place money in other European peers at a lower valuation?" said a banker at a major Greek lender, declining to be named.

National, Alpha, Piraeus and Eurobank need 27.5 billion euros to shore up their capital adequacy, a sum about 14 times their market worth.

The four banks showed a combined negative equity of 7.8 billion euros in their third-quarter results, rising to about 11 billion if intangibles like goodwill are stripped out, analysts say.

Some analysts see National and Eurobank, which are merging to form the country's biggest group, as more at risk of ending up nationalised compared with peers Alpha and Piraeus.

"The NBG-Eurobank entity has comparatively higher capital needs, so there is a larger risk they may fail to meet the 10 percent requirement when they issue shares," said analyst Maria Kanellopoulou at Euroxx Securities.

CAPITAL BASE

Battered by the country's debt crisis, the four lenders suffered a 28.2 billion euro hit from sovereign debt writedowns, which coupled with impaired loan provisions wiped out their capital base.

In their lobbying with the Bank of Greece, the government and the state support fund, they argue that for the industry to stay competitive and avoid becoming saddled with new problems, politicians must not end up micro-managing banks.

"It makes sense to address the negative equity issue before attempting to attract private investors," said Eurobank chief economist Gikas Hardouvelis, who advised former prime minister Lucas Papademos, who has also held the ECB vice president post.

"It's in the public interest to eventually sell the banks at a profit and we should be thinking of how to maximise their value in the future. Excluding the private sector does not maximise this," he said.

Banks will try a final pitch to ease the conditions imposed on their state aid when troika inspectors return to Athens in the coming days for a new assessment of the country's performance under the bailout deal, several bankers said.

"Overall, the recapitalisation scheme will be challenging, more so for some banks than others," another senior Greek banker said. "Many ideas were put on the table but I don't see the authorities making any substantive shift." ($1 = 0.7628 euros) (Editing by Deepa Babington and David Holmes)

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