Gov’t aims high on bank recap

The government will table its draft law on the recapitalization of domestic banks in Parliament by the end of this week, or next week at the latest, after it has been examined in detailed by the country’s creditors.

In any case, the bill will have to be voted before the publication of the banks’ stress test results, expected by October 31. Sources close to the negotiations say that the government and the creditors’ mission chiefs will have to reach an agreement on the final text by the end of the week so that it is approved by Parliament before the results are out.

The government appears to be concerned about the state’s holding in the banks: It is seeking not only to ensure a sizable stake so as to avoid the losses that a major reduction in its holdings in favor of private investors would entail, but also to make sure that the state’s stake is in shares with increased rights.

Analysts note that the participation of the private sector and the increased rights in the state’s shares are two conflicting targets and stress that the government will have to clarify its intentions quickly and accelerate procedures as there has already been a serious delay which could put the timely completion of the recapitalization in doubt.

Bank sources add that the issue of the major reduction in the value of the state’s holdings is indeed important and that there are some alternative solutions for the maximization of the value of the government’s stake in banks. However, they note that this cannot be done by way of an increase in the state’s control on banks.

Bank officials stress that the legal framework will need to be clarified rapidly so that banks can start focusing on attracting investors. They report a strong interest by foreign investors in participating in the banks’ share capital increases, provided that the framework is clear, the terms attractive and that the government confirms its determination to implement the bailout agreement through the ongoing review by the creditors.