* The two banks unlikely to raise enough cash from market
* Merger seen blocked by country's international lenders
* Both bank boards to meet Tuesday to decide recap plans
* Together need 15.6 bln euros to boost solvency ratios
(Adds finance minister quotes)
By George Georgiopoulos and Lefteris Papadimas
ATHENS, April 8 Two of Greece's biggest banks
risk being nationalised after admitting they were unlikely to
raise enough cash from private investors and seeing their merger
blocked by the country's international lenders.
National Bank bought 84.3 percent of smaller rival
Eurobank via a share swap in February, as Greek banks
consolidated to survive a debt crisis that has pushed the
country's economy into a six-year slump.
But lenders fear the combined entity, with assets of about
170 billion euros ($221.4 billion), will be too big relative to
Greece's 190 billion euro economy and make it difficult to sell
in the future, prompting the state to halt their integration
until a state bank support fund decides their future.
Both banks told the central bank they are unlikely to raise
a set portion of their planned share issues from the market,
meaning they would fall under the control of the support fund,
the Hellenic Financial Stability Fund (HFSF).
Shares of both banks initially fell as much as 30 percent on
Monday on concerns their investors would effectively be wiped
out if the HFSF takes full control of the lenders.
But Eurobank shares reversed course to gain 25 percent in
late trade on talk the bank would make a final push to meet the
required private sector participation on its own and stay
"We will mobilise and try to cover the required 10 percent
from the market. I am not saying we will make it, but we will
try," a Eurobank executive who declined to be named told
Reuters, putting the bank's needs from the private sector at 580
Both bank boards will meet on Tuesday to spell out their
recapitalisation plans. Together they need 15.6 billion euros to
boost their solvency ratios to levels set by the central bank
after losses from a sovereign debt writedown.
Greek government officials have said deposits in the banks
will be unaffected by the deal's suspension, in a bid to
reassure jittery Greeks after a bailout to rescue Cyprus
included slapping a levy on deposits.
Finance Minister Yannis Stournaras said the troika of the
country's international lenders has not vetoed the deal, adding
that the 50 billion euros set aside from the bailout package for
the recapitalisation would be sufficient.
"No one has vetoed the National Bank-Eurobank integration.
Whether it will take place or not depends on the terms the HFSF
will set," Stournaras told lawmakers on Monday.
Under a recapitalisation plan agreed with Greece's
international lenders, the HFSF will supply most of the capital
the banks need in exchange for new shares and contingent
But to stay private, banks must ensure private investors buy
at least 10 percent of their share offerings. Analysts have
warned that Greece's banks will not be able to bounce back
immediately despite an injection of billions of euros.
"It will take time for banks to get on a more sustainable
footing as the economy continues to shrink. It's too early to
expect that credit flows will lift the economy," said Giada
Giani, an economist at Citigroup.
If National and Eurobank are nationalised, it would result
in about 40 percent Greece's of banking sector being controlled
by the state, while the other two major Greek lenders remain
National Bank's 84.3 percent stake in Eurobank could be
diluted down to a low single-digit holding if the HFSF pumps in
all the capital it needs.
Rival lenders Alpha and Piraeus Bank
have already announced share offerings, aiming to meet the
required 10 percent private-sector take up.
Whether NBG and Eurobank will be eventually integrated or
run as stand-alone entities will be decided by the HFSF fund
after their recapitalisation is completed. If the plan is
dropped, Piraeus will emerge as the country's biggest bank.
"The key issue for Greece is to have a well capitalised
banking system, willing to lend and get the economy out of
free-fall," said economist Ben May at Capital Economics in
"From a macro-economic perspective, it doesn't make that
much difference if this means having 10, seven or five banks,"
($1 = 0.7679 euros)
(Additional reporting by Renee Maltezou; Editing by David
Holmes and Leslie Adler)