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Sales of non-core business assets and subsidiaries of Greek banks will have to be organized under express procedures, which will reduce the cost of recapitalization of Greek banks, ensure their sustainability and allow them to seek ways to meet their capital requirements under the best possible conditions.

Based on instructions from the European Union for the national law to include the bail-in by 22 July, the sustainability of a bank will no longer be determined by the supervisor but by stress tests.

If the results of the diagnostic test showed a capital deficit for the coming years, then the bank should initially cover it entirely through a capital increase. If it failed, it would resort to the bail-in, the priority order being hybrid bonds, subordinated securities, and senior bonds respectively.
 
If the bank showed a positive level of equity after the transfer of these securities, it would be considered sustainable and the funds to recapitalize it would come from the package of 25 billion euro that the state will receive from the European Stability Mechanism after signing a new memorandum.

If the bank did not show a positive level of equity even after the compulsory transfer of securities, it would be considered unsustainable and must be consolidated by haircutting non-guaranteed deposits. The state would cover the remaining funding gap from the 25-billion-euro package.

Bank managements could intervene in these procedures in the following way: by completing the sale of non-core business assets and subsidiaries of banks before the completion of stress tests or by withdrawing from markets so that to create an internal capital by reducing the weighted assets.

These activities, however, must be completed before the results of stress tests in order for the European Central Bank and the Single Supervisory Mechanism SSM to be able to consider them. This will reduce the final bill and the likelihood of the bank being deemed unsustainable.

It is therefore expected that banks will sell whatever is possible from the non-core business assets or bank subsidiaries in the country and abroad over the next 2-3 months, in cooperation with the supervisory authorities and the Competition Commission.

The first step - leaving the Balkan countries

"Banks have no interest in keeping their subsidiaries abroad in view of their situation due to the state," said a market factor, who noted that there would be struggle only for Finansbank in Turkey.

The majority of deposits in the subsidiaries in the Balkan countries belong to subsidiaries of Greek companies and the risk of deposit run because of events in parent banks remains high.

In contrast, the larger part of deposits in Finansbank belongs to Turkish companies and households and the bank is not connected with the events in Greece.

The National Bank of Greece will seek to cooperate with DG Comp to avoid direct cuts in its investments in Finansbank but DG Comp and the supervisory mechanisms will likely force it to reconsider its plan.

The easy case of subsidiaries in Romania

It is believed that Greek banks will leave Romania in a relatively normal manner. The local economy is at a satisfactory level of development and the subsidiary banks have forecasted 80% of non-performing loans, not counting the secured loans.

In addition, programmes are in force to impose restrictions on the network and staff, thereby significantly reducing functional costs.

"These banks have a clear balance and they could be immediately sold," said a banking source. He acknowledged the poor conditions under which Greek banks must act and carry out express sales but noted that the considerable interest expressed by private equity funds but also by European banking groups could partially offset the situation.

As the site Euro2day.gr has already reported, one Greek bank has been in talks with private equity funds on the sale of its Romanian subsidiary since the month of May in order to reach an agreement without holding an open competition.

A slight demand for the subsidiaries of Greek banks in Cyprus has been reported as well, mainly from a Greek bank. It seems, however, that there is no interest for the immediate purchase of the subsidiaries in Serbia, Bulgaria, Macedonia and Albania.

Sellable business assets

The sellable non-core business assets prior to completion of stress tests include the following:

- NBGI - the competition has ended and an independent evaluator has assessed the National Bank of Greece, which allows the completion of the agreement with Goldman Sachs - Deutsche Bank. The events in Greece have however temporarily suspended the procedure.

- Astir Palace - if the National Bank, the Privatization Agency and Jermyn Street agree to allow the sale, the assessment remains 400 million euro.

- Insurance companies of systemic banks - as far as European holdings and private equity funds believe that the political uncertainty is gradually decreasing. In addition to the hanging sale of ATE from Piraeus Bank to Ergo Holding, foreign privatization funds had expressed interest in Eurolife before the referendum and the imposition of capital controls.