Bank recap needs estimated at 28 bln euros minimum
By Yiannis Papadoyiannis
The amount of funds that the country’s four systemic banks will need in the context of their recapitalization has reached dizzying heights, having climbed to almost 28 billion euros following the announcement of nine-month results by National and Alpha on Friday.
With National stating it will need 9.7 billion euros and Alpha another 4.6 billion, while Eurobank Ergasias requires 5.8 billion and Piraeus 7.3 billion plus 500 million for its recently acquired ATEbank, the bill for the four lenders’ recapitalization process will come to about 27.9 billion euros.
On Friday National announced its nine-month losses amounted to 2.45 billion euros, while those of Alpha came to 711.8 million.
In fact the dependence of local lenders on state capital exceeds 30 billion euros, as the four main banks have already issued preferred shares worth 4 billion euros. At the same time their total capitalization amounts to 2.6 billion euros. In other words, through the issuing of common shares, they will have to draw 10 times as much capital as their current value, at least according to the market’s conventional wisdom.
The paradox is that almost all major banks have a negative net position, which means that the shareholders’ capital has not only been lost but, in theory, they owe more than 5 billion euros. To become sustainable again – i.e. to respond to the demand of the Bank of Greece for a capital adequacy ratio of 10 percent – they will need 28 billion euros up until 2014.
As bank officials have been saying since spring, the reduction of the level of capital needs is key to attracting private funds in the recapitalization. That has not happened. Nevertheless, senior bank officials remain optimistic and believe that in the next few months there will be some initiatives for the reduction of the funds required.
If this does happen, combined with an improvement in the general economic circumstances, it could lead to a success in share capital increases with the participation of private investors (covering at least 10 percent) so as to retain the private character of banks.
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http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_23/12/2012_475754
Mere cash injection may not be enough
Impact of huge bailout funds received could prove smaller than what officials hope for
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By Dimitris Kontogiannis
The Greek government has invested a lot in the long-awaited bailout tranches to cope with the developing credit crunch and bring the economy to the stabilization phase late next year. However, a closer look at the figures indicates the positive impact may be less than hoped for, and therefore the risk of disappointment on the back of fostering high expectations should not be ignored or underestimated.
After much deliberation, the group of eurozone finance ministers decided to disburse 34.3 billion euros in bailout funds to Greece earlier this month and authorize the disbursement of two more tranches in the next few months. Greece is to receive a total of about 49 billion euros by the end of March 2013 and an additional amount of 3.4 billion euros from the IMF, bringing the entire amount to 52.5 billion euros, assuming the country complies with the terms of the new bailout agreement. The sum of 11.3 billion euros in the form of European Financial Stability Facility securities has already been used to pay for the debt buyback.
In addition, new initiatives were agreed to slash the projected debt-to-GDP ratio to 124 percent in 2020 from an estimated 144 percent, including debt relief of 21 billion euros via the recently completed debt buyback and interest rate cuts on bilateral EU loans in exchange for more policy commitments from the Greek side. The new initiatives support the case for a more sustainable public debt in the long haul but the majority of analysts and others strongly doubt they will suffice to convince the markets to start lending to Greece again.
Nevertheless, it is commonly accepted the adjustment program will slide off track again if the economy underperforms and the recession turns out to be much deeper than the officially projected 4.5 percent next year. Government officials have pinned a good deal of hope on the EU and IMF bailout funds to avert such an undesirable outcome. Much centers on the repayment of long- overdue bills to domestic creditors, including pharmaceutical companies, exporters and others, and the recapitalization of the systemically important Greek banks to restore the flow of credit to the economy.
Although no one doubts the positive impact of the bailout money on the economy, many analysts, bankers and others are cautious and less optimistic than officials. According to them, the real flow to the economy will in fact be the 7-8 billion euros earmarked for domestic arrears. Still, a few of them argue the actual flow will be smaller, since they expect some companies and individuals to hoard cash after repaying bank loans and their own overdue bills to the state, suppliers and employees. Unfortunately, this is the feeling one gets when talking to some company executives who admit new investments are not in their business plans for next year, citing the lack of visibility, suppressed consumption and insufficient bank funding.
Government officials and others reckon bank credit to the economy will be gradually restored following the recapitalization of important local banks, facilitating the realization of private investments put on hold. Greek banks are going to receive some 23 billion euros in the form of EFSF bonds out of the total 49 billion from EU funds by the end of January 2013 for the recapitalization and resolution process, with 16 billion euros allocated in the EU bailout tranche of 34.3 billion. This amount is additional to the sum of 25 billion euros in bridge capital already injected earlier this year.
The numbers may look big and promising but the credit inflows could turn out to be much smaller for two reasons. First, there should be strong demand for loans by healthy companies. However, it is not clear whether financially sound firms are willing to borrow much more than for refinancing existing loans. On the contrary, there seems to be a lot of demand by problematic companies and individuals but these are not the type of borrowers recapitalized banks want to lend to.
Second, and perhaps more important, banks will likely continue to face liquidity constraints after the recapitalization process is complete unless deposits grow fast. Government officials and some bankers hope some deposits will return, betting on increased confidence in the banking system by the public, following the large capital injections. But this remains to be seen, bearing in mind the protracted recession.
The major constraint preventing local banks from extending a lot of credit to the economy remains their dependence on Eurosystem funding to the tune of 125-130 billion euros. Their capacity would have been enhanced by a few billion euros if the stock of Greek treasury bills held by banks was reduced. Yet the state has no plan to do so and the stock is expected to remain unchanged at around 18 billion euros according to one official. Moreover, the European Central Bank is unlikely to agree to a rise in the Eurosystem’s exposure to the Greek banking system by increasing the overall limit, while some analysts even expect the ECB to seek a smaller exposure at some point. On the other hand, a number of top bankers expect local credit institutions to gradually regain access to money markets after the recapitalization. If this turns out to be true, it could help reduce the banks’ dependence on Eurosystem funding and/or boost credit to the economy.
All in all, the huge bailout funds should have a positive effect on the Greek economy, partly tackling the credit crunch. However, the impact may be smaller than officials hope for as actual credit flows may disappoint on cash hoarding and banks’ continuing large dependence on Eurosystem liquidity. It will take a sizable return of deposits in the face of a deep recession and banks’ obtaining access to money markets after recapitalization to prove the optimists right. Therefore, the risk of disappointment on the heels of rising expectations should be taken into account.
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http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_23/12/2012_475751
Ministry must decide on price hike for power
By Chryssa Liaggou
In the Christmas week the government will have to reach an agreement on the extent of upcoming electricity rate hikes. The Energy Ministry is expected to withold its final decision on the issue until the last possible moment, according to the memorandum signed with the country’s creditors, with the rate increase set to apply from New Year’s Day.
In this difficult juggling act, the ministry will have to strike a balance between struggling consumers who will find it hard to cope with even a minimum increase, and securing the viability of Public Power Corporation and the electricity market in general, which is on the verge of bankruptcy and is in dire need of major rate hikes.
“The power bill will need to be serviced, otherwise we are creating a different kind of problem,” Deputy Minister Asimakis Papageorgiou told Kathimerini.
PPC has requested rate hikes of between 14 and 49 percent, but the Regulatory Authority for Energy (RAE) has recommended that the ministry approve about a third of the increase that PPC demands.
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23 December 2012 / 17:12:43 GRReporter
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The Athens Concert Hall, picture: www.iefimerida.gr
The largest part of the guarantees provided by the state is directed to unprofitable state-owned firms so that they can get loans from banks. In practice, this creates a "hidden" debt, which appears in official documents after the loan or collateral expires. The total amount of guarantees at the end of 2011 amounted to 19.95 billion euro. With the additional guarantees provided to banks, or 65.09 billion euro, the total amount increased to 85.04 billion euro, according to the auditors' report. Loans to state-owned companies seem to be a big problem. Due to their deficits, these companies cannot cover them. Moreover, since they need funds, the state is forced to provide new guarantees for new loans. That is, guarantees are provided to loss-making enterprises that otherwise would not be able to obtain credit and the state budget has to cover their losses.
Before the inclusion of the country in the support mechanism and the arrival of the Troika, the practice of the Ministry of Finance was to finance troubled state-owned firms with small amounts directly from the state budget. For the majority of their other needs, state guarantees were provided so that they could obtain capital from banks. The benefit of this process comes from the fact that the state budget and public debt are not directly burdened, but the money is added to the debt after the expiry of the guarantees. This saves time at the price of interest rates.
Thus, a debt of approximately 20 billion euro, or 10.3% of gross domestic product, was accumulated which was guaranteed by the state. Unprofitable state companies not only cannot pay their loans, but when they have to meet their current needs, they do so with another expensive government loan guarantee. Initiated by the government, as of 31 December 2011, last year's debt included the uncovered remainder of the credit agreements of Athens Urban Transport Organisation and the tram company, totalling 2.1 billion euro. For the absorption of these loans the technique of deduction was used, i.e. the state covered the debts of both companies and obliterated the Ministries' liabilities to them. Of the 11 loan agreements, 8 belong to Athens Urban Transport Organisation and 2 to the tram company.
According to the report by the State Audit of 31 December 2011, the highest liabilities guaranteed by the state include:
- The Greek State Railways - 8.02 billion euro, an amount that the company could not cover and state guarantees were deducted.
- The State Defence Systems Company - state guarantees amounted to 782.5 million euro.
- Former Olympic Airlines, credited with a 17.96 million euro government guarantee.
- The State Real Estate Company, which received state guaranteed loans amounting to 261.3 million euro.
- Four companies from the state armoury and defence industry received a government guaranteed loan amounting to 428.7 million euro. The largest part of this amount, or 409 million euro, went to the Greek Company for Air Transport.
- The Organisation for school property received guaranteed loans amounting to 535.7 million euro.
- The Athens Concert Hall received 237.3 million euro.
- Athens Municipality received a 29.5 million euro loan.
- The State Horse Racing Company's loans amounted to 115.9 million euro.
- The Centre for Disease Control and Prevention received government-guaranteed loans amounting to 223.7 million euro.
Loans guaranteed by the state have also been given to companies in a better economic position:
- The Athenian subway - 1.81 billion euro.
- The Athenian Road Company - 553.3 million euro.
- The State Electric Company - 1.57 billion euro, and its affiliates received 169.5 million euro.
- The State Gas Company - 278.1 million euro.
- Athens International Airport - 438.6 million euro.
The state has also covered Aharnes and Zografou Municipalities' debts amounting to tens of millions of euro. These municipalities received large loans from foreign banks, but could not service them.
According to information from the Audit Court, the Greek state has also guaranteed loans to private companies amounting to 3.8 billion euro, most of which relate to:
- Private companies - 2.11 billion euro. These are companies from various regions of the country which were granted state guarantees for natural disasters, as well as under other sectoral or regional support programmes. The largest part - 449.2 million euro - went to companies affected by fires.
- Farmers and agricultural companies which were credited with 163.1 million euro.
- Loans to individuals and businesses affected by earthquakes - 320.1 million euro.
- Loans to victims of fires and natural disasters - 9.1 million euro.
- Borrowers from abroad - Montreal Municipality - 1.37 billion euro, also guaranteed by the state.
Guarantees granted for mortgage loans amounted to up to 1.71 billion euro, as they were allocated as follows:
- Greeks who have returned to their homeland - 1.33 billion euro.
- Roma people - 358.97 million euro.
- Other cases - 15.1 million euro.
Guarantees that expired in 2011 and which also burdened the state budget amounted to 1.44 billion euro. The largest amount comes from the State Railways which couldn't service loans amounting to 841.4 million euro. This amount was covered by the guarantor, or the Greek state. Athens Urban Transport Organisation ranks second, with a total amount of 271.2 million euro, followed by the Air Transport Company - 153.8 million euro, The Defence Systems Company - 90.3 million euro and The Athens Concert Hall - 20.6 million euro.
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