National Bank of Greece (NBG): Stress Test Anxiety Got The Better Of Greek Banks
Greek banks pushing hard to recover capital grounds before stress test
For many Greek banks, it is of prime importance to be in a good shape before the stress test. Most of them are struggling to bring their capital figure in better shape so that their existing investors are saved from huge losses from bailout.
According to Financial Times, Piraeus Bank SA (OTCMKTS:BPIRY), one of Greece's largest lenders, offered its minor bondholders last week, the option to convert their bonds into ordinary shares. This step will significantly increase bank’s core tier one capital ratio, which will give a positive signal about the company’s financial strength.
Industry sources informed Financial Times that other big banks in Greece (as National Bank of Greece, Alpha Bank and Eurobank) are planning similar steps to give a positive impression to the international lenders and regulators.
The stress test planned by European Central Bank (ECB) is a key measure to determine the funds required to recapitalize the banks. The tests are basically a part of the €86 billion bailout planned for the country in which €15-25 billion will be allotted to revive the banking sector.
Capital controls measures were imposed by the government of Prime Minister Alexis Tsipras at the end of June. Greek banks have been negotiating to raise funds with institutional investors in the US and Europe both, which resulted in improved confidence.
Banks are confident that asset quality review and a stress test of ECB will not highlight a shortfall of more than €5 billion. They are putting their efforts to raise an amount equal to €5 billion from investors in the western world, mainly hedge funds.
In the current scenario of banks, the previously forecasted amount of €25 billion to recapitalize them won’t be needed according to experts. The banks will be capitalized again with an amount less than that. The base-line scenario of the test will allow the banks to cover the shortfall through private funds; as a result of the fears of massive public buyouts resulting in huge losses on shareholders are slowly diminishing.
Apart from the funds received from private investors, any shortfall will be met by the Hellenic Financial Stability Fund (HFSF), through which a mix of new shares and contingent convertible bonds (Cocos) will be bought.
Currently, the final game lies in how regulators regain the stability of the banking system with involvement of private sector; so that the dependence on bailout funds is reduced as much as possible.
Using huge public money sums to bailout banks will give Greek government massive control over banks, and trusting leftist Syriza government to keep control over a major sector of economy is a bit hard for many.
National Bank of Greece
On October 26, 2015, National Bank of Greece (ADR) (NYSE:NBG) stock plunged more than 11% to close at $0.78. It was able to maintain a range of $0.77 - $0.84 and reported a trade volume of 14,404,356. Overall, the stock has maintained a downward trend after it slightly recovered last week.
National Bank of Greece has lost more than 52% of its market value year-to-date (YTD) and has maintained a market cap of $3.22 billion. In comparison to S&P 500 Index, the stock's value has declined of over 52% whereas the S&P 500 index has gained 0.66% YTD.
The rise in non-performing loans was modest this quarter. It increased to 24.6% compared to 24.3% recorded in the previous quarter. Non-performing loans are a major factor that the regulators still think that the bank would be needing support from the bailout fund after all. For this quarter, the net interest income plunged by 3.7% compared to the previous quarter.
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