National Bank of Greece (NBG), Alpha, Eurobank, and Piraeus, will receive ... the
state because they are considered crucial to the national banking sector.
Greek Banks Recapitalisation National Bank of Greece (NBG), Alpha, Eurobank, and Piraeus, will receive support from the state because they are considered crucial to the national banking sector. Key highlights of the ministerial cabinet act on bank recapitalization terms: •Banks should meet a common equity capital ratio of 6%. The calculation of this capital ratio excludes existing preference shares (issued to the Greek State back in 2009) and any contingent convertible bonds (CoCos). •Private shareholders will be required to cover 10% of the capital needs to meet the aforementioned 6% target, while the remaining will be covered through the issue of common shares to the HFSF. •The issue price of the capital increases will be will be equal or lower between: 1) a 50% discount on the weighted average stock price over the past 50 sessions (prior to the announcement date) and 2) the stock price on the prior to the announcement date. •If private investors cover at least 10% of right issues, they will be granted up to 9 warrants, which can be exercised every six months over the next 54 months. .
Greek Banks Recapitalisation •The exact number of warrants will be determined dividing the number of HFSF shares by the number of private shareholders shares. Assuming that private shareholders cover the minimum required 10%, they will get 9 warrants, if they cover 20% they will receive 8 warrants etc. •The exercise price of each warrant will be determined applying a 3% interest plus a premium of 1 percentage point per annum over the issue price (of capital increases). Thus, warrants may be exercised at a premium of 4% over the issue price in the first year, 5% in the second year up to 8% in the fifth year. •The remaining capital requirements – above the 6% common equity ratio – to meet the BoG core Tier I target (estimated at 9%) will be covered through the issue of CoCos by the banks to the HFSF. CoCos will have a 5-year maturity and carry an annual coupon of 7% with a step up of 0.5 percentage points per annum.
Greek Banks Recapitalisation •Banks may repurchase CoCos under the condition that their Core Tier I ratio (after the repurchase) exceeds BoG threshold (estimated at 9%). •If: a) CoCos are not repurchased by a bank within five years or b) Core Tier I ratio falls below 7% or the bank is not viable or c) the bank is not able to pay the annual coupon, then CoCos are mandatorily converted to common shares. The conversion price equals to a 50% discount on the issue price (of the capital increases) for the first two cases and to the 65% of the weighted average stock price over the previous 50 sessions (prior to the conversion) for the third case. The aforementioned three cases resulting to a mandatory conversion of CoCos to common shares along with the annual cost and the cost of repurchasing CoCos, consist a potential risk over the long-term.
Greek Banks Recapitalisation
Developments •Troika to agree on deferred tax from losses on PSI to reduce the amount of issued CoCos by some E 2 Billion (up to 20%of Tier 1). • Are CoCos terms considered affordable by banks? -Coupon paid to the Greek State / Political Implications -Short term ECB Repos cost banks 1-2 % . Portugal experience at 7% •Banks to return to profitability under the Private Sector •Alternative if 10% is not offered by the Private sector :HFSF? •Banks bad debts provisions and possible write ups?
Example: Sensitivity of CoCos coupon
ALPHA Net Income E Millions 2006
2007
2008
2009
2010
2011
552
850
519
350
86
-3800
2014
2015
2016
2017
2018
105
112
120
128
135
CoCos cost (E Millions) projected
Based on 7% Coupon escalating, approx E 1.5 Bn CoCos (estimate) and assuming Cocos are not repaid. NB. This is a simplistic calculation and does not take into account any elaborate modelling
