Greek banks ride sovereign coattails

Greek banks are preparing to return to the European bond market, riding on the coattails of the sovereign that this week sold its first euro benchmark in three years. The country’s banking sector is desperate to wean itself off the emergency liquidity assistance on which it has been dependent since 2015.

There is precedent for the sovereign smoothing the way for its banks – the four largest Greek banks sold a combined 2.25 billion euros of senior unsecured debt around the time of Greece’s 3-billion-euro, 4.75 percent five-year paper in April 2014. “You clearly have a situation where Greece is back in the capital markets, and the banks have no [outstanding bonds],” said Louis Gargour, chief investment officer at LNG Capital. “That is unusual to say the least, and that is also not sustainable – you want to have a capital structure; you can’t just have equity.

So it’s only a matter of time before the banks issue debt.” Bondholders were asked to swap their debt into equity to help plug a combined 14.4-billion-euro capital hole across the four largest banks in 2015 as the lenders crumbled under an exodus of deposits and a spike in bad loans. Bankers admit interest in Greek paper is so far concentrated among hedge funds, but say that it is improving. The return of the sovereign sent a very positive signal, said Dimitris Nikolos, head of investor relations at Eurobank.

“It’s not a secret that we would like to be in the markets as well,” he told IFR. The issuer hopes to return this year with either a small senior unsecured or covered bond issue, depending on the price differential. “In the past we had a very comprehensive, developed, diversified funding program, with ABS, RMBS bonds, senior debt, Tier 2, etc,” Nikolos said.

“We would like to go back to that.” Eurobank is not the only lender eyeing the market. In a recent corporate update, National Bank of Greece lists a “return to modest primary capital markets activity” among its strategic objectives. [IFR]