ATHENS Greece will tell international lenders on Friday how it will wind down the state's troubled Hellenic Postbank (GPSr.AT) after potential suitors bowed out of the sale.
Efforts at finding a buyer failed on Thursday when three of the country's big banks threw a spanner in the works of the latest attempt to consolidate the Greece's battered banking sector, leaving authorities no choice but to split the bank in two.
The latest development with Postbank highlights the challenges Athens faces in restructuring its banks and restoring their solvency, which is key to regaining access to wholesale lending markets and attracting deposits that will help them to increase lending to help revive a slumping economy.
"Postbank is not an easy project; finding a suitor and seeing that most of its staff keep their jobs is difficult," said Theodore Krintas, head of wealth management at Attica Bank (BOAr.AT).
Postbank will be split into a healthy business that will be kept alive and run as a standalone state entity, with the bad part being liquidated, a banker close to the matter told Reuters on Thursday.
The Greek central bank will announce its plans later on Friday, the banker added.
Authorities have not spelt out how the split would work and how big a chunk of assets would go to the bad bank, but they are expected to follow a similar solution to that tried with the smaller Proton Bank, which was wound down last year.
"It's the path of least resistance as the government is mandated to resolve the issue," said an analyst who declined to be named.
He said that it made sense for the government to recapitalize the bank on its own and see what it can do with it at a later stage.
Stripping out the problematic part of Postbank will force the authorities to pump in capital to cover the resulting funding gap - the difference between assets and liabilities. Another banker close to the procedure said that the gap would be about 4 billion euros ($5.3 billion).
The bigger the portfolio of assets to be transferred to the bad part of Postbank, the larger the funding gap that will need to be filled by the Hellenic Financial Stability Fund (HFSF).
Greece set up HFSF as a capital backstop to recapitalize viable banks and cover the winding down of others that are deemed non-viable.
After the fund recapitalizes the good part of Postbank it will become its sole shareholder. The cost is estimated at about 500 million euros, according to the second banker.
With the Greek recession entering its sixth year and unemployment at a record high of nearly 27 percent, the government is keen to show there is light at the end of the tunnel for a population growing tired of prolonged austerity.
The unlocking of a long-delayed European bailout in December averted bankruptcy and helped the government to score points in opinion polls, pulling ahead of the anti-bailout leftist opposition for the first time in months, but challenges remain.
In the banking sector, the major project will be the recapitalization of the four biggest banks - National Bank of Greece (NBGr.AT), Piraeus Bank (BOPr.AT), Alpha Bank (ACBr.AT) and Eurobank EFGr.AT. Authorities aim to complete this by the end of April.
It remains to be seen whether the banks can remain as privately run entities or will have to be nationalized.
Facing a capital need of 27.5 billion euros, the big four will issue contingent convertible bonds, which will be taken up by the HFSF, and new shares to restore their Core Tier 1 solvency ratios to at least 9 percent.
To avoid being nationalized, at least 10 percent of the new shares banks issue must be taken up by current or new shareholders - not an easy task given the current adverse environment. ($1 = 0.7568 euros)
(Editing by David Goodman)