Eurobank’s share capital increase plan halted

Eurobank’s share capital increase plan halted


By Lefteris Yallouros – Athens

The Hellenic Financial Stability Fund (HFSF), which was set up to bail out the country’s troubled lenders and is now the major shareholder of Greece’s four systemic banks, has turned away Eurobank’s request to call an extraordinary general meeting of shareholders in the next 20 days for a share capital increase.

Under existing law, the bank’s capital increase would only be covered by private investors.

Instead, the HFSF proposed the capital increase should proceed after legislation on a new legal framework for the recapitalization of the Greek banking system is voted in Parliament.

The new law is expected to be tabled in Parliament next week and be put to a vote immediately.

Analysts point out this is merely a technical issue which doesn’t threaten the bank’s recapitalization and doesn’t change the government’s intention to attract private investors to Eurobank.

Eurobank reportedly informed the HFSF of its decision to propose an immediate share capital increase so as to cover its capital requirements with a full refusal of the pre-emption rights of existing shareholders.

The Fund was furious at the proposal of the Eurobank administration as, under the current legal framework, its exclusion from the share capital increase would slash its stake in the bank, thus harming the interests of taxpayers. Eurobank became 95 percent owned by the Hellenic Financial Stability Fund (HFSF) after it failed to attract private investment last year.

The share sale is likely to heavily dilute the HFSF’s stake in the bank, making Eurobank the only one of Greece’s four major banks that has significant private sector ownership.

Eurobank is believed to have attracted private funds willing to invest in the bank’s capital increase. However, the fact that the government has not brought the new legislation on the recapitalization process to Parliament meant investors had to wait.

After the Bank of Greece announced the results of stress tests on Greek banks earlier this month, it was thought investors would be put off from covering Eurobank’s capital needs and that the bank would have to be handed money by the bailout cash available to the HFSF for the banking system. This doesn’t seem to be the case, as interest in Eurobank remains strong.

The HFSF intends, according to sources, to take part in the share capital increase in order for its share in the bank to remain above 50 pct. In order to achieve this, it is estimated it would have to pump EUR 600 – 750 million into Eurobank.

The issue has become political too as it is not clear what would happen if coalition government MPs decide to vote against the new legal framework in Parliament. Nonetheless, it won’t be easy for New Democracy or PASOK MPs to go against the wishes of the government on this issue, as the troika will most certainly not sign off on the evaluation of progress made in the adjustment program if the law is turned away by parliamentarians, meaning the next tranche of Greece’s rescue loan would be jeopardized.