October 12, 2018 / 3:39 PM / 9 months ago

Piraeus Bank in talks with ECB for more time to issue Tier-2 bond - sources

ATHENS/FRANKFURT, Oct 12 (Reuters) - Greece’s largest lender by assets, Piraeus Bank, has told the European Central Bank that it may miss a year-end target to raise capital because of unfavourable financial markets, sources familiar with the matter said.

The ECB would like Piraeus to raise capital by the end of this year, a target that the Greek lender has been working towards, but rising bond yields have frustrated its attempts to go to the market.

Greece emerged from its latest bailout in August but its banks are still fragile as they struggle to reduce their bad loan pile stemming from the country’s sovereign debt crisis. At 88 billion euros ($102 billion), the sector’s soured debts amount to nearly half the country’s annual economic output.

Greek bank stocks have lost about half their value this year, and the slide has been intensifying in recent days as a rout in Italy’s government bond market eroded appetite for riskier euro zone assets.

Rising funding costs are in turn frustrating attempts by weaker European banks to mend their balance sheets, at a time when the ECB is keen to shore up the financial system against the risk of another crisis.

Piraeus has said it is implementing a capital enhancement plan that will include a subordinate debt issue, a non-dilutive Tier-2 bond to raise about 500 million euros.

Earlier this month, Piraeus Chief Executive Christos Megalou told Reuters the bank was in continuous dialogue with supervisory authorities and monitoring debt capital markets for a window of opportunity to issue the bond.

Piraeus shares have stabilised after a steep 37 percent fall since the start of October, sparked in part by concerns over the bank’s frustrated efforts to issue subordinated debt.

“We continue to monitor markets and when conditions are right we will proceed with a Tier-2 issue,” a senior source at the bank told Reuters on Friday.

The bank is likely to be given some flexibility in terms of the timing, given the tough market conditions, said another source at the bank.

Piraeus will not be in breach of capital rules if it misses a Dec. 31 deadline, meaning the ECB will not have to sanction the bank, this source said.

But the miss would be seen as a test of its supervisor’s resolve as the ECB is still testing how to enforce non-binding expectations.

The deadline is also seen as crucial as Daniele Nouy, the head of the ECB’s supervision unit, leaves at the end of the year and may see the case as a test of her legacy.

One possible option to buy time would be to sell the Tier 2 instrument to Greece’s bank rescue fund HFSF. Diluting shareholders is not a preferred option for the bank, the source said.

The ECB declined to comment. ($1 = 0.8652 euros) (Writing by George Georgiopoulos, additional reporting by Lefteris Papadimas; Editing by Adrian Croft)

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