NBG’s Greek debt warning

Posted by Neil Hume on Sep 08 09:30.
The most denied cash call of recent times has finally happened. Late on Tuesday night National Bank of Greece announced a €2.8bn ‘Comprehensive Capital Strengthening Plan:

Successful completion of both components of the Capital Plan is expected to raise approximately Euro 2.8 billion of additional Core Tier 1 capital representing an increase of Core Tier 1 capital ratio of approximately 380 basis points. The net proceeds to be realised from the Finansbank Offering will ultimately depend on a number of factors including prevailing market conditions, offer size and structure. Assuming successful completion of the Capital Plan, our Core Tier 1 capital ratio would have been 13.4% as at 30 June 2010, including the impact from the Euro 450 million Tier 2 capital issuance, which was completed in August, and which constituted the first step towards completion of our Capital Plan.

NBG says the equity issue and disposal will ‘create an additional, sizeable capital buffer to face the macro-economic situation in Greece in the short-to-medium term’.
But what does that mean? Could it be that NBG is raising the money to cover a Greek government bond haircut? Very possibly.
Indeed, its interesting to note that while NBG’s chief executive Apostolos Tamvakakis doesn’t think the Greek government will default he doesn’t say anything about a restructuring:

RTRS-NATL BANK OF GREECE CEO SAYS STRONGLY BELIEVES THERE WILL BE NO DEFAULT FROM GREEK STATE

As a reminder, NBG carries its Greek government bond portfolio at a 10 per cent discount in its books. According to analysts a €2.8bn capital raise would cover an additional 13 per cent haircut and pretty severe restructuring.
Now, if a Greek debt restructuring is coming down the slipway the banks you don’t want to be owning are Piraeus and Eurobank. This snippet, from a recent Unicredit note, explains why.

If we take the above analysis one step further and look at a debt maturity extension of 5 years alongside a halving of the coupon for all debt, the impact on the banks is much more painful. This leaves on average haircuts of 23% for GGBs from par, and writedowns at the Greek banks of on average 21% (as not all bonds are being held at par).

This probably explains why the Greek bank sector has taken a sizeable hit in early trading. If NBG feels the need to raise capital expect others to follow – if they can.


And if you want to know why a Greek debt restructuring is all but inevitable Michael Lewis’ lengthy piece for Vanity Fair tells you all you need to know.

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