MacroPolis

Few people noticed in July 2012 that a press release published by Eurobank concerning the intention of its major shareholder, EFG Group which was fully controlled by the Latsis family, would signal radical developments for the bank in the near future.

That announcement indicated that the EFG Group, which controlled 44.7 percent of Eurobank shares at that time, intended to transfer 43.55 percent to nine younger members of the Latsis Family and to the John S. Latsis Public Benefit Foundation in order to satisfy the regulatory authorities. Each of the “new” shareholders would hold approximately 4.4 percent of Eurobank shares, while the EFG Group would retain 1.15 percent.

Following that transaction no single shareholder controlled more than 5 percent of Eurobank shares. Most importantly, the new shareholder structure would also facilitate a potential merger of Eurobank with another bank and the participation of the former major shareholder in the structure of the new entity.

Two months later, National Bank of Greece (NBG) announced on October 5, 2012 a voluntary share exchange offer to acquire 100 percent of Eurobank. NBG offered 58 new shares for every 100 Eurobank shares corresponding to a 75 – 25 percent participation of NBG and Eurobank shareholders respectively in the new entity.

The Latsis Family had committed to tender their shares in the voluntary offer, meaning the NBG offer would be successful regardless of the other Eurobank shareholders’ participation. The results of the tender showed that 84.4 percent of Eurobank shareholders accepted NBG’s offer, with NBG becoming Eurobank dominant shareholder. Furthermore, the Latsis Family became a major shareholder in NBG, controlling a stake of almost 12 percent.

Following a series of delays in the merger process amid the troika’s strong objections on the deal, NBG said on April 8, 2013 that the merger was being suspended as the government had decided to recapitalise the two banks separately.

After the collapse of the mega-merger, Eurobank’s board announced on April 21, 2013 its decision for a share capital increase of 5.84 billion to be fully subscribed by the Hellenic Financial Stability Fund (HFSF). Thus, unlike the other three systemic Greek banks (Alpha, NBG and Piraeus), Eurobank withdrew from the process of raising at least 10 percent of its capital needs from private shareholders and thereby preserving the private management status of the bank.

The price at which the HFSF participated in Eurobank’s capital increase stood at 1.54 euros and was determined after applying a 50 percent discount on the weighted average share price of the last 50 trading sessions, which was in line with bank recap legislation.

Eurobank became the first bank to be fully recapitalised by the HFSF, with the latter controlling 98.6 percent of the bank’s share capital. NBG’s stake was diluted to 1.2 percent. In addition, the HFSF participation was in the form of full voting rights, whereas in the other three banks the fund was given restricted voting rights.

After the HFSF’s coverage of its capital requirements, Eurobank announced in May 2013 a “voluntary” conversion of hybrid and other securities to common shares (i.e. an indirect share capital increase). The amount accepted stood at 580 million, which equals to 10 percent of its previous capital needs. So it is surprising that the bank was not allowed to make such a move prior to its full recapitalization by the HFSF.

In mid-July 2013, Eurobank was declared the preferred bidder in the tender process (where the other three core banks also participated) for the acquisition of New Hellenic Postbank and new Proton Bank, which had been resolved at an earlier stage.

The total consideration for the former stood at 681 million paid to the HFSF in the form of 1.42 billion new Eurobank shares. Following that transaction, HFSF participation in Eurobank stood at 95.2 percent and remained constant until the recent capital increase of 2.86 billion.

For Proton, the cash consideration stood at just 1 euro (similar to Emporiki’s acquisition by Alpha), while the HFSF covered the capital needs of Proton by contributing 395 million in cash.

Although not publicly communicated, the preference shares of Postbank and Proton worth 300 million euros were assumed by the respective bad banks and thus were not transferred to Eurobank. Nevertheless, Eurobank still has a liability to the state of 950 million for its own preference shares related to pillar I bonds. Unlike the other three systemic lenders, Eurobank’s management has recently indicated it will not pay back these shares in the near future.

There has recently been discussion about the amount of state aid Eurobank has received. This consists of the HFSF’s full recapitalization in 2013, which amounts to 5.84 billion. As indirect aid, we could add the 395 million worth of Proton capital needs covered by the HFSF after the announcement of its acquisition by Eurobank. This brings the total direct and indirect state aid to 6.24 billion.

In contrast, the resolution and recapitalization costs of the acquired banks burdened primarily the HFSF, while most actions were implemented well in advance of both banks’ acquisition by Eurobank.

In particular, Hellenic Postbank’s funding gap and capital of 3.7 and 500 million respectively (4.2 billion in total) were fully covered by the HFSF in early 2013.

Proton Bank’s initial funding gap of 862 million was covered by the Hellenic Deposit and Investment Guarantee Fund in 2011, while an additional funding gap of 260 million was covered by the HFSF in 2012. Furthermore, Proton’s capital of 515 million was also covered by HFSF in the first half of 2013, prior to the Eurobank transaction.

Thus, from the total amount of 2.03 billion related to Proton resolution and recap cost, only the last tranche of 395 million could be perceived as an indirect state aid to Eurobank.

Although the state aid to Eurobank (6.24 billion) is less than half compared to what has been suggested by several commentators, the current value of HFSF participation stands at 2.3 billion implying an unrealized loss close to 4 billion.

Eurobank has recently successfully completed a capital increase of 2.86 billion, which was fully covered by private investors with cancellation of pre-emptive rights. As a result, ‘new’ investors control 63.6 percent of the bank’s share capital, while the HFSF’s participation was diluted to 34.7 percent. Falling below the 50-percent mark, the HFSF has also lost the full-voting rights status and now has restricted voting rights on strategic decisions.

So, almost one year after its full recapitalization by the HFSF, Eurobank becomes the first Greek bank to be re-privatized, with both actions fully reflecting the troika’s demands.

*Manos joined MacroPolis in April 2014 and is our head analyst. He has years of experience in the Greek financial sector. Since 2000, Manos has served as senior bank analyst at ex-P&K Securities and investor relations officer at Eurobank. More recently he worked as head of equity research at Euroxx Securities, the largest non-banking brokerage firm in Greece. Follow Manos: @ManosGiakoumis