November 01, 2015•Update: November 05, 2015
by Vasiliki Mitsiniotou
ATHENS
Greek banks will cede significant management control under the government's rescue plan passed by parliament late on Saturday.
The four major banks -- National Bank of Greece, Piraeus, Alpha Bank and Eurobank -- that are being recapitalized with €14 billion ($15.4 billion) will each have an official of the Hellenic Financial Stability Fund (HFSF), which is providing most of the funds, on its board. The fund will also have voting rights based on its shareholding in the banks, like any other shareholder.
The European Central Bank's Single Supervisory Mechanism had announced on Saturday morning, the amount , according to the stress tests it had run for the capital needs of Greece's largest banks, that would be needed for recapitalization. The sum being provided meets the needs of a worst-case scenario, the ECB said.
Private investors will also be able to invest in these banks to help meet the funding gap. They will have until Nov. 6 to purchase shares in the four banks, after which the HFSF will provide the funds.
The HFSF is expected to have a representative of one of its European creditors, from either the EU or the Eurogroup, on its board. Funds for recapitalizing the Greek banks will ultimately be provided by the Eurozone Member States’ bailout -- €25 billion ($27.5 billion) of bailout funds is to be set aside for this purpose.
Under the terms of the new law, the fund is also to establish a committee for the evaluation of its employees. The committee will have the right to fire employees who do not meet the committee’s criteria.
This is the third recapitalization in many years for the Greek banking system having received €28.6 billion ($31.7 billion) by the HFSF and private shareholders in 2013, and another €8.3 billion ($9.2 billion) from private shareholders following year, according to the Bank of Greece, the country’s central bank.
This year, a combination of capital controls and new austerity measures dictated by the latest bailout agreement since July, along with a load of non-performing loans, have put the Greek banks into a highly vulnerable position. According to the National Bank of Greece, about half of all outstanding loans at the four banks are non-performing.
According to the bill, the Hellenic Financial Stability Fund will cover the capital gap that isn’t covered by private investors based on a combination of new shares and contingent convertible bonds (Cocos). It is also stated in the bill that every new share will come with full-voting rights.
The ratio of Cocos--shares in which the HFSF will cover participation--will be determined by an act of the cabinet on Sunday according to the Finance Minister Euclid Tsakalotos who spoke in Parliament on Thursday.
During Saturday’s debate at the House, Tsakalotos appeared optimistic about the state of the economy. After the announcement of results of the stress tests he said "it is much better than we thought and it removes the risk of Greek deposits haircut".
What’s more, Greek bank account holders can rest assured that deposits under € 100,000 ($110,000) are fully insured by the Community Directive BRRD [Bank Recovery and Resolution Directive]. BRRD is already in force in all EU Member States from January 1, 2015 and will be enforced in Greece from January 1, 2016.
Legislation concerning the recapitalization of the Greek banks including the participation of the Hellenic Financial Stability Fund (HFSF), the Greek bank bailout fund created in 2010 by European authorities was passed in Greek parliament this Saturday evening.
The bill passed with a large majority at the plenary of the House with all parties voting in favor except for far-right Golden Dawn party and the Greek Communist Party.
Now that the legislation is in place, Greek banking authorities must sprint to submit their recapitalization plans to the European Central Bank by Nov. 6. This will begin the process of recapitalization, which is due to be completed by the end of the year.
