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The new law on recapitalisation was submitted in the Greek parliament today, a day before the stress tests results will be announced. The law will be voted on Sunday in order for Greek banks to launch the recapitalisation procedures on Monday.

Under the law, the bid price of new shares will be established on the basis of the bidding procedure that each bank will launch to attract investors. "It is not allowed to offer new shares at a price lower than the price of those shares that are covered by the Financial Stability Fund within the same issue. The price at which they should be offered may be lower than the price of shares previously covered by the Fund or than the current stock exchange price." The Financial Stability Fund will provide capital to banks by issuing special convertible bonds and shares. If shares are issued, they should be with full rights. The law does not explain how the Fund will participate in the capital increase nor what the convertible bonds - shares ratio should be. The issue will probably be clarified in the coming days.

The Financial Stability Fund will be represented by one member in the Management Board of each bank that has received financial assistance from the Fund.

The representative of the Fund in the Management Board will have the following rights:

• the right to request the convening of a shareholder general meeting,

• the right of veto on any decision taken by the bank’s Management Board:

      - in connection with dividend distribution and the policy of additional incentives and bonuses for the president, executive director and the other Management Board members, and for the general manager and his deputies.

      - if the disputed decision may put at risk depositor interests or seriously affect the liquidity, solvency or the normal functioning of the bank in general (including its business strategy, asset and liability management, etc.)

      - a decision that refers to the corporate actions under Art. 7, section 3 and that could significantly affect the Fund's participation in the share capital of a financial institution,

• the right to request a postponement of the Management Board meeting by up to three (3) working days to receive instructions from the Executive Committee of the Financial Stability Fund,

• the right to convene the Management Board,

• the right to approve the Financial Director.

However, the law emphasizes that "while exercising his rights the representative of the Financial Stability Fund in the Management Board will comply with the business autonomy of the bank".

In addition, the law stipulates that the remuneration of senior bank officials can not be higher than the salary of the head of the Bank of Greece and that the bonuses should be eliminated while the bank is receiving state aid.

The law envisages evaluation and monitoring procedures for the bank management with the assistance of independent consultants.

As for cooperative banks, it provides for significant changes in order to attract institutional investors.

Banks in turn have expressed serious reservations about the participation of holders of secured bonds in a possible internal recapitalisation (bail in), and about the insistence of institutions that the capital increase should affect the total capital requirements, being formed on the basis of the unfavourable scenario of stress tests.

Along with this, there is serious concern over the fact that the recapitalisation procedure excludes Greek investors, as capital controls makes their participation in the capital increase virtually impossible. Moreover, according to sources, the managements of certain banks intend to turn only to foreign institutional investors due to limited timeframes.