Monday, October 5, 2015

Greek bank recap is race against time

by Hugo Dixon


October 5, 2015

Greece is racing against time to recapitalise its banks. Capital must be injected by year-end, when euro zone rules on financial bailouts change. This is to avoid a haircut of uninsured depositors, which could cause the country to enter a new downward spiral.

To meet the deadline, lots of things need to fall into place. The European Central Bank first has to finish its stress test to decide how much capital the banks, whose balance sheets have been hit by capital controls and recession, require.

The four systemically important banks – Alpha, Eurobank, National Bank of Greece and Piraeus - then need to see if private investors will take part. If not, the recapitalisation will be funded entirely by a loan from the euro zone to Athens, an outcome which would lead to almost total nationalisation and probably the removal of the existing management.

Alexis Tsipras, Greece’s recently re-elected prime minister, also needs to deliver on a wide array of commitments he has made to its euro zone partners. If he doesn’t, they won’t lend Athens up to 25 billion euros to pop into the banks, as promised under the country’s new bailout programme.


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