In the context of the third economic adjustment programme for Greece, the European Commission has approved additional state aid of €2.72 billion to Piraeus Bank under EU state aid rules, on the basis of an amended restructuring plan.
The Commission concluded that the measures already implemented as part of the bank’s existing restructuring plan of July 2014, in addition to those envisaged in the amended plan, will enable Piraeus Bank to ensure lending to the Greek economy in line with EU state aid rules, in particular the 2013 Banking Communication, and the Bank Recovery and Resolution Directive.
Piraeus Bank is the largest lender to Greek companies and households. EU Commissioner in charge of competition policy, Margrethe Vestager, said: “I welcome that Piraeus Bank has covered a significant part of its capital needs from private investors. This is a sign of market confidence. The additional public support and further implementation of its restructuring plan should enable the bank to return to long-term viability and continue supporting the recovery of the Greek economy.”
As part of the third economic adjustment programme, on 31 October 2015, the comprehensive assessment carried out by the European Central Bank’s Single Supervisory Mechanism (SSM) to ensure that the four systemic Greek banks are adequately capitalised identified a capital shortfall of €4.93 billion for Piraeus Bank.
Piraeus Bank has succeeded in covering in total €1.94 billion of this large capital needs by private means (existing creditors, through voluntary exchange of their notes for new shares, and new investors through share capital increase). The SSM also approved additional capital actions of €271 million. This means that Piraeus Bank has raised sufficient capital from private investors to cover its asset quality review and baseline scenario capital needs under the SSM’s comprehensive assessment. The level of private capital is a sign of market confidence in the restoration of the long-term viability of this bank. It also shows that contributions by junior and senior bondholders can significantly reduce the need for injections of taxpayer money to support banks, whilst preserving financial stability.
The remaining balance of the capital needs amounting to €2.72 billion (as identified in the SSM’s comprehensive assessment’s so-called stressed scenario) will be covered by additional state aid injected by the Hellenic Financial Stability Fund (HFSF). This will take the form of a combination of share capital and contingent convertible capital instruments. The funding will be provided by the European Stability Mechanism (ESM) in the framework of the economic adjustment programme agreed with Greece with €10 billion funding made available to cover potential capital needs of the banking sector.
On this basis, the Greek authorities proposed changes to Piraeus Bank’s restructuring plan approved in July 2014 in addition to the extensive restructuring already implemented. These changes include a deepening of the bank’s operational restructuring and some amendments of deadlines in response to the changes in the bank’s macroeconomic situation, as well as a commitment to further dispose of non-core assets outside of Greece. The Commission took into account the fact that most of Piraeus Bank’s difficulties did not come from excessive risk taking but from the uncertainty and the events that led to the agreement of the third economic adjustment programme for Greece in August. Therefore, it found the measures proposed in the revised restructuring plan are sufficient to limit distortions of competition as a result of the state aid and, in particular, requested no downsizing in the bank’s core lending activities in Greece.
As part of its state aid decision, the Commission has also verified that the capital injection by the HFSF can be granted as a precautionary recapitalisation within the meaning of the Bank Resolution and Recovery Directive (BRRD). It concluded that all the conditions of the BRRD to grant the aid without having to put the bank into resolution were met.