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About 450,000 small shareholders in banks have been invited to invest within a few weeks in the recapitalisation of banks. Unlike in the past, the provision of warrants, i.e. the option for those who participate in the capital increase to acquire more shares at predetermined prices, makes this process even more complicated.

In parallel, candidates have a lot of questions that have not been answered yet, since prices of the share capital increase have not been announced yet, nor have the conditions for this, such as reverse split of bank shares, for example. Furthermore, the thriller about the future of the merger of the National Bank of Greece and Eurobank and whether there will be one or two increases, further complicates the situation.

At the other extreme, there are bankers and financiers who stressed that when and if banks return to profit and their shares increase in value, long-term investors will have to show patience for a few years, will have warrants in their hands and will come out with a profit many times greater than the initial investment. In order to solve the puzzle, bankers and financial analysts answered some basic questions of shareholders.

When will the share capital increase happen?

The process of convening a general meeting of shareholders in order to approve increases has already begun for Alpha Bank and Piraeus Bank. Today is the first general meeting for Alpha Bank, at which it is not expected to have a quorum, and for Piraeus, the date is 12 April. Approvals by shareholders of both banks will be issued by mid to late April, i.e. after competent authorities have granted an approval the process will begin in mid-May. Regarding the National Bank and Eurobank, it should be clarified whether there will be a general capital increase or two separate ones for the two banks. In any case, the process will be extended at least until the end of May.

At what price and under what conditions will these increases happen?

Exact prices and what will happen to the reverse split of bank shares will be decided at general meetings. Based on what has been said so far, for the price of new shares the average price of the last two months will be taken into account with a generous "discount", in order for these to be attractive to old shareholders. Accordingly, in order to avoid over-abundance of shares before or after the increases, there will be a reverse stock split, that is, every 5 or 10 bank shares will become 1 new one. However, even this is not clear yet. It is not clear whether it will happen before or after the increase either, nor is the ratio of old to new shares clear.

How do warrants function?

On the basis of the what has been agreed for the process of recapitalisation for each share that someone takes from the share capital increase, he or she will receive a free warrant allowing them to buy nine shares more at a predetermined price. That is, if private shareholders cover 10% of the increase, in theory, they could take the other 90% as well, that are held by the Financial Stability Fund, and at a price that is pre-determined. According to the process’s conditions, the cost of using warrants will increase by 4% after the first year, another 5% after the second one, another 6% after the third year, and so on.

In practice, the shareholder would pay initially for one share, but will be able, for the next 5 years, to acquire 9 more shares when they deem it advantageous, according to the movement of bank shares. In other words, the warrants are something like bait to those originally involved in the share capital increase, since they allow them to have the first word in the increase of their share, regardless of the movement of shares.

Can I sell or buy warrants?

Yes. Besides the option to use these within five years, their owners can sell them on the secondary market. Similarly, if someone does not participate in the capital increase, they can buy warrants in order to use them in the future. Obviously, their price on the secondary market will depend on the movement of shares, but according to information, it will not affect stock indices.

How much will new shares stemming from warrants cost?

The cost of using warrants will be determined during the course of the capital increase and will be equal to the price that will apply to those involved in the increase. Moreover, for those who want to use their right of conversion of warrants into shares, there will be an additional cost, amounting to: 4% for the first year, another 5% for the second year, another 6% for the third year, a further 7% for the fourth year and another 8% for the fifth year. That is, the sooner someone exercises their right, the less they will receive.

Until when can I exercise my right to convert warrants into shares, and when can I get the new shares?

The deadline for this is 5 years after the completion of the process of increasing the share capital. In the final conditions of the increase, investors will know what the specific period is, which is calculated semi-annually. A certain percentage of warrants that can be converted into shares at any particular time will be determined, in order to avoid flooding of the stock market. If shareholders express their desire to exercise their right within a few days and after paying the amount, they will be given shares and will be able to offer them to the exchange.

Do I have to exercise this right?

No. The process is voluntary. According to share prices of banks and personal choice for investment, each shareholder may exercise their right fully or partially when they want to. If they consider that it is profitable to do so, if stock prices have not risen, they are not obliged to give money, even five years after the capital increase.

What will I earn if stock prices rise?

The greatest benefit for those who have warrants is that they will see their profits multiply if the share price on the stock exchange rises. For example, if during the capital increase a shareholder has acquired 1,000 shares for 1 euro each, together with these they will also acquire warrants for the purchase of 9,000 shares (9 shares for every 1 purchased). If after three years shares are negotiated for 1.3 euro, the profit is generated in the following way: in order to exercise their right of conversion of warrants into shares, they will pay a total of 10,420 euro (9,000 shares for 1 euro plus the cost of holding for three years). In parallel, they will sell a total of 10,000 shares for 13,000 euro, that is, they will earn 2,580 euro – a 258% return from the original investment. The profit increases if the share price rises more.

That is, if after three years the share is worth 1.6 euro, the total profit will be 4,580 euro - more than 4.5 times the initial capital. Since warrants will be negotiated on the secondary market as well, holders can negotiate them directly without converting them into shares. Accordingly, if the stock price falls, losses will amount to only the cost of the initial capital. That is, if the price of a share is 0.80 euro, the investor will lose only 200 euro.

I have bank shares, should I sell them or should I participate in the capital increase?

Those who have already sold their bank shares in recent weeks have apparently won since, just within a few days, banks suffered losses exceeding 30%. This means that for the same money they can either buy more shares or retain part of their availability in order to participate in the bank capital increase. There is no right answer, in both cases there is a risk.

I want to participate in the share capital increase. When is it profitable for me?

According to bankers and financiers, the appropriate term for someone to decide what to do is after things are clarified with regard to the price increase. Therefore, even if they lose some opportunities that will arise due to the high variability, investors will know exactly what money they will have to give, and whether it is profitable to buy shares or warrants when they start negotiating these.