National Bank of Greece has completed a share offering and a highly successful bond placement in the space of two key months for the bank's turnaround.

At the start of March 2014, the Greek central bank published the results of a stress test carried out on the country’s systemic banks to determine any extra capital needs after seven years of recession. Those needs would come on top of the mix of public and private recapitalisation that took place in the second quarter of 2013, including the Hellenic Financial Stability Fund’s acquisition of majority stakes in all four systemic banks. The test showed a shortfall of €2.18bn for National Bank of Greece (NBG).

But the bank’s management concluded that this arose essentially from its Turkish subsidiary, Finansbank, “on the back of an extremely conservative stress scenario that was included in the baseline scenario of the exercise”. Consequently, the bank announced in a press release its intention to implement a capital plan within the April 15 deadline set by the central bank, but “without raising new equity capital”.

NBG board member Petros Christodoulou says the management held several consultations with the central bank after the stress test results were published, which led the authorities to recognise a number of specific capital measures that were not in the original drafts of the bank’s restructuring plan. These were deemed to be “readily executable on a near-term timetable” to yield about €1.04bn in total.

However, the management ultimately decided to prepare a share issue as well. This was completed in May, raising €2.5bn, with Goldman Sachs and Morgan Stanley as joint global coordinators, together with Bank of America Merrill Lynch, Citigroup, HSBC, UBS and Mediobanca as bookrunners.

“The rationale of the €2.5bn capital increase was to cover the immediate capital requirement arising from the Bank of Greece stress test and, also, to meet the additional capital requirements arising from Basel III fully loaded rules. Additionally, the capital raise provides the optionality to repay the €1.35bn of Greek government preference shares when appropriate, lifting this overhang on the stock,” says Mr Christodoulou.

Keys to success

During international roadshows for the capital increase, Mr Christodoulou says the bank’s presentation focused on several aspects. These were the strengths of NBG’s business franchise in Greece and beyond, the vital matter of the bank’s asset quality and profitability, the development of its liquidity position, and its ability to build the required capital base through operating profits, the capital raising itself, and other capital actions.

“The capital increase was highly successful, as it was oversubscribed and was totally covered by international institutional investors. The share capital increase gave us the opportunity to substantially broaden our shareholder base and enlarge our free float, and I believe that a stronger capital base reinforces NBG’s position in supporting the recovery of the Greek economy,” says Mr Christodoulou.

The Hellenic Financial Stability Fund’s stake in the bank was reduced from 84.4% to 59.5% of NBG. Of the remainder, international institutional investors now own 86%, while domestic retail investors who participated in the 2013 recapitalisation own about 10%.

NBG originally planned to raise capital by selling a 20% stake in Finansbank, which has been the largest single profit generator for the bank in recent years. This secondary public offering (SPO) was postponed in 2011 as the eurozone crisis generated severe volatility.

“The SPO of a minority stake in Finansbank is part of our restructuring plan and will be executed when market conditions improve. I would like to stress that Finansbank is a core asset and a highly successful part of NBG’s international strategy. [Finansbank] offers significant growth potential and revenue diversification, as well as attractive returns. At current market valuation levels, Finansbank is significantly undervalued, but Turkish banks have already started to rerate,” says Mr Christodoulou.

Funding plans

A further motivation for raising capital beyond the immediate needs identified in the stress test was to improve the confidence of debt market investors in NBG, thereby reducing its funding costs. Just weeks before the capital increase, NBG launched its first post-crisis senior unsecured bond issue, for €750m, with a 4.5% yield at issuance.

This was only the second senior unsecured issue by a Greek bank since the crisis after Piraeus, which placed a bond a month earlier, and it priced inside the sovereign yield curve. The bookrunners were almost identical to those who later worked on the share offering – Bank of America Merrill Lynch, Citigroup, Goldman Sachs, HSBC and Morgan Stanley.

“The senior unsecured issue was a very significant move, acting to further diversify our funding base. The fact that we were able to price the five-year issue 32 basis points through the sovereign is a testament to the trust of investors on our business model. Together with the issues of other Greek banks, it boosted international confidence in the Greek economy and, going forward, we expect additional issuance to have the same effect,” says Mr Christodoulou.

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