Greek bank owners face new problems
Updated: 2011-10-29 08:04
By Elisa Martinuzzi, Maria Petrakis and Tom Stoukas (China Daily)
MILAN, Italy / ATHENS, Greece - The owners of banks in Greece may be wiped out over the coming months. That's as the government prepares to take over the lenders after bondholders agreed to writedowns of 50 percent on the nation's debt.
The Greek Prime Minister George Papandreou said on Thursday that the government will probably buy shares in some banks as a result of a planned writedown, without giving details. The 30 billion euros ($42 billion) already set aside for Greek bank aid should cover the lenders' needs, the European Banking Authority said.
For shareholders in Greece's publicly traded banks, led by National Bank of Greece SA and Alpha Bank SA, there may be little left once the companies end up under government control. The six biggest lenders, which have assets of 380.2 billion euros and a combined market value of about 3.6 billion euros, are unlikely to attract investors willing to bet on a turnaround.
"Greek banks never had a choice on whether to buy Greek bonds, and they're now being punished," said Andreas Koutras, an analyst at InTouch Capital Markets Ltd, a fixed-income adviser in London. "It is possible that equity valuations will go to zero."
Most banks won't have any alternative other than government aid, said Dimitris Giannoulis, an analyst at Deutsche Bank AG in Athens.
"Foreign investors will continue to avoid Greece, and we're likely to see retail investors, who have dominated recent trading, reduce bank exposure too," Giannoulis said.
Shares of the country's six biggest banks, which value the lenders at about a quarter of their tangible book value - a measure of what shareholders can expect to receive if a company fails and liquidates its assets - rose on Thursday amid optimism that the expanded firepower of the rescue fund to 1 trillion euros may help stem the region's crisis.
"Nationalizing the banks is extremely strong," said Guillermo Nielsen, a former finance minister of Argentina. "Most government entities have a lack of leadership and management. Leaders should be careful not to take extreme measures because things can improve over time."
On Thursday, Papandreou told reporters in Brussels that bank nationalization would benefit Greece.
"We had a long discussion on this with the Swedes who went through this process some years ago, (and) who believe it was the best available and which had very positive results for both the Swedish banking system and the Swedish economy," he said.
Sweden nationalized two big banks in the 1990s. It still owns a stake in Nordea AB almost two decades after taking over its predecessor and merging it with another lender the government had nationalized.
If Greece nationalizes its banks, it will follow Ireland, which took control of five of its six largest lenders, including Allied Irish Banks PLC and Irish Bank Resolution Corporation Ltd, following the implosion of a domestic real estate bubble in 2007. The government was forced to seek an international bailout in 2010, after injecting 62 billion euros into its banks over the past two and a half years.
Most Greek banks will need significant recapitalization, the terms of which remain unknown and subject to market conditions, National Securities, the brokerage arm of National Bank, wrote in a note to clients on Friday. Lenders are likely to be given until June 30 to replenish capital.
Under Greek law, the nation's banks can apply for state aid if they can't meet capital requirements and once they have attempted to raise capital by tapping new and existing owners. Banks that are publicly traded must show they tried to sell stock at a discount to their market value.
The state-backed Hellenic Financial Stability Fund, set up under a May 2010 European Union-led bailout, will inject the capital that it receives. The fund is run by seven board members appointed by the nation's central bank and vetted by the finance ministry. It will have board representation, with veto powers, at the banks it controls.
The next few days may be critical in deciding the immediate fate of lenders, according to UBS AG analyst Alexander Kyrtsis.