Greece's Top Banks Need $36 Billion Boost

By STELIOS BOURAS and NEKTARIA STAMOULI

The Wall Street  Journal 

ATHENS—Greece's four largest banks need a capital boost of €27.4 billion ($36.29) to overcome the impact of the country's sovereign debt write-down as they battle to stem growing losses in the rapidly shrinking domestic economy.

A mammoth €200 billion debt restructuring completed by the country earlier this year wiped out the capital base of Greece's top lenders—National Bank of Greece SA, Eurobank Ergasias, Alpha Bank AS and Piraeus Bank SA forcing them to appeal to the government for help.

On Friday, NBG said it requires a capital boost of €9.7 billion while Alpha needs a capital injection of €4.6 billion. This comes after Eurobank and Piraeus Bank said Thursday they need €5.8 billion and €7.3 billion respectively.

"The total number seems to be at the high end of expectations," said Panagiotis Kladis, an analyst at investment services company National P+K.

"This is a lot of money and investor interest in these banks will be determined by economic conditions prevailing in coming months and the economy's broader outlook."

As part of Greece's second €173 billion bailout package from international creditors, Athens has earmarked about €50 billion for a bank recapitalization plan.

Under the terms of the plan, Greece's bank-rescue mechanism, the Hellenic Financial Stability Fund, will underwrite coming rights issues and effectively take control of the four big banks, which combined account for three-quarters of the banking system's assets.

Greek banks will use a mixture of common shares and convertible bonds in order to meet international capital adequacy requirements.

The plan says the banks must use common shares to achieve a core Tier 1 ratio of 6%, but can use convertible bonds to top up their capital needs beyond that and in order to reach a minimum 9% level.

The shares, which will be offered in rights issues that are expected to take place early next year, will be offered at a 50% discount to their 50-day average market price. The bonds will carry a 7% annual coupon, which will rise by 0.5 percentage point per year and will be converted to shares at the end of five years.

The capital figures provided by the banks are in line with estimates put together by the Greek central bank that take into account a continuing audit calling for higher provisions from lenders to cover bad debts.

With the country grinding through its fifth year of recession, NBG and Alpha reported growing losses on rising bad loans and falling income levels.

NBG showed a nine-month loss of €2.45 billion, versus a €1.34 billion loss last year. Net interest income fell 11% on the year to €2.5 billion while loan provision charges jumped 43% to €1.87 billion.

"Against this stressed environment, our efforts focused on fortifying our balance sheet by carrying out provisions of circa €1.9 billion in the nine months of the year…defending our key sources of liquidity, and curtailing operating costs," said NBG Chief Executive Alexandros Tourkolias in a statement.

Alpha Bank said its loss for January to September hit €711.8 million, up from €566.7 million last year. Its net interest income dropped 16.4% on the year to €1.1 billion while loan loss provisions hit €1.17 billion, up 41.5% on the year.

In a bid to become more efficient and attractive to potential investors, Greek banks have been merging recently, with National Bank teaming up with Eurobank. Alpha Bank has said it would acquire the Greek unit of French lenders Crédit Agricole SA and Piraeus Bank will acquire the local unit of Société Générale SA. Piraeus has also acquired the healthy assets of state-owned farm lender ATEBank.

—Philip Pangalos contributed to this article.

Write to Stelios Bouras at stelios.bouras@dowjones.com and Nektaria Stamouli at nektaria.stamouli@dowjones.com