Two of Greece’s biggest lenders are being probed by the eurozone’s banking watchdog in connection with last year’s €14.4bn recapitalisation of the sector, which was as a condition of Greece’s latest international bailout.
Piraeus Bank, the country’s largest lender, and Attica Bank, its fifth-largest, are under scrutiny by the European Central Bank’s single supervisory mechanism in its first audit of Greek financial institutions since it was set up in 2013.
The probe was launched after shareholders in both banks privately voiced concerns over possible irregularities in the latest round of capital raisings, say bankers involved in the procedures.
Two teams of investigators from the SSM are due to arrive in Athens this month.
The SSM supervises Greece’s four systemic banks while the Bank of Greece, the central bank, supervises smaller lenders including Attica.
But because of concerns over Attica’s failure to complete its public offering even after the alleged receipt of state aid, the central bank will co-operate with the SSM on the investigation.
Depending on the findings, both banks could be forced to raise additional capital to comply with ECB requirements. Senior bankers involved in the recapitalisations could also face disciplinary action.
Following stress tests by the ECB and Bank of Greece, the country’s five biggest lenders last November undertook to raise a total of €7bn through public offerings, while the remaining €7.4bn was covered by the Greek state’s bank rescue fund.
The banks were in dire need of fresh capital to shore up their balance sheets following a six-month run on deposits, the imposition of capital controls and a surge in non-performing loans, which now account for about 50 per cent of their portfolios.
But while other banks’ offerings were comfortably oversubscribed, Piraeus and Attica struggled to meet targets of €1.34bn and €750m, respectively.
Faced at the last minute with a shortfall of €500m, Piraeus prevailed on two rival Greek banks and a family-owned Greek conglomerate to help plug the gap, said several Athens bankers.
Several Piraeus borrowers also chipped in by converting collateral on their loans into equity in return for a writedown of the same loans on favourable terms, the bankers said.
“It’s not the first time that a Greek bank has engaged in borderline practices to pull off a recapitalisation,” said Andreas Koutras, a director of financial consultancy ITC Markets.
Piraeus said in a statement the SSM would conduct a “standard audit procedure following a complaint launched by a shareholder that participated in the share capital increase last November”. It said the bank “of course welcomes any regulatory scrutiny”.
Meanwhile, Attica Bank could face questions over whether it benefited from illegal state aid after the Syriza-led government pressured managers and directors of two state-controlled companies to participate in its capital-raising.
Eydap, the Athens water company, invested €20m despite opposition from senior managers at the utility. An extraordinary assembly of shareholders approved the Eydap board’s decision.
The Athens International Airport company invested €9.9m after a foreign minority shareholder blocked a proposal by the board to participate with more than €30m from its cash reserves.
Canada’s Public Sector Pension Investment Board, the foreign shareholder, was ultimately forced to accept the smaller investment in Attica under the terms of their shareholder agreement.
Three months later Attica has not been able to close the offering, which is still €68m short of the original target.
Asked to comment, Attica said the SSM would examine the capital raising as part of an overall audit of the bank.
The ECB and the Bank of Greece both declined to comment.
Additional reporting by Claire Jones
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