Breakingviews-Greek banks look bail-in proof – for now

Tue Apr 9, 2013 2:25pm IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By George Hay

LONDON, April 9 (Reuters Breakingviews) - Cypriot depositors will be spitting tacks. Greece’s two largest banks, National Bank of Greece (NBGr.AT) and Eurobank EFGr.AT, need 15.6 billion euros of capital between them. They have been struggling to attract private funds. But instead of suffering a Cypriot-style scalping in the form of a proper bail-in, they will be kept whole. What gives?

There are two convincing reasons for the apparent double standards. One is that Greek banks can already count on 50 billion euros from their most recent bailout, which can be used to nationalise them at the end of this month if they can’t raise privately at least 10 percent of the funds they need. Another is that euro zone officials have been bending over backwards to emphasise that Cyprus is a special case, for fear of possible bank runs in peripheral states.

The mooted NBG/Eurobank merger could have helped by reducing the capital hole if it had generated significant synergies. But the Greek authorities are sceptical that these will materialise, according to a person familiar with the situation. NBG’s management has already admitted it will struggle to attract private sector interest. Given the impact the merger would have had on competition, Greek authorities may prefer to restructure two smaller banks instead of one big, complex one – especially if Eurobank can attract private capital on its own.

If the Greek economy doesn’t deteriorate beyond what’s expected, depositors in any nationalised banks will be fine. But if it takes a turn for the even worse, the 21 percent loss rate assumed as part of Greek banks’ capital requirements may prove too optimistic.

The Greek government has a buffer: the 50 billion euro rescue package included a 5 billion euro facility for any future bank capital needs. That will be bolstered if Alpha (ACBr.AT) and Piraeus (BOPr.AT), the other two banks, can find private investors - their capital requirements would then be reduced by 10 percent each. But beyond that, the euro zone would have to decide whether it wanted to help Greek banks by providing even more capital. If it balked at doing so, a Cypriot-style fate for Greek depositors would start to look somewhat less far-fetched.

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CONTEXT NEWS

- National Bank of Greece and Eurobank are to be recapitalised separately after plans to merge the two Greek banks were put on hold, NBG announced on April 8.

- The NBG board will meet on April 9 to discuss a capital increase. If Greek banks cannot find at least 10 percent of their capital needs from the private sector, the Hellenic Financial Stability Fund will fully cover the capital increase.

- The final decision on the merger of NBG and Eurobank will be made by the HFSF.

- NBG shares fell 10.4 percent to 0.47 euros on April 8. Eurobank shares rose 20 percent to 0.18 euros. At 0945 GMT on April 9, NBG shares were trading at 0.43 euros, down 6 percent. Eurobank shares were at 0.23 euros, up 27.8 percent.

- Reuters: Greek banks NBG and Eurobank face state rescue [ID:nL5N0CV0YG] - For previous columns by the author, Reuters customers can click on [HAY/]

(Editing by Pierre Briançon and David Evans)

((george.hay@thomsonreuters.com))

((Reuters messaging: george.hay.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS GREECE/BANKS

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