* Banks lobby behind scenes on 27 bln euros recap
* Say terms deter private sector investors
* Argue could result in bank privatisation
* Authorities likely to reject calls
By George Georgiopoulos
ATHENS, Feb 28 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
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.
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
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
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.
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
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)