Today, Tuesday, July 23, it will be processed by the competent parliamentary committee.
It is expected to be put to a vote in the plenary of Parliament on Friday, 26 July 2024.
According to the explanatory report, the bill aims to “continue the smooth operation of the Bank of Pankritia, as well as the Bank of Attica (Attica Bank), in which the State has already invested significantly. The bank that will emerge after the consolidation and merger of the two above-mentioned banks will form the basis for the creation of a fifth banking pillar, which will ensure the existence of a more competitive banking environment, for the benefit of depositors, consumers and businesses.”
The path to creating a fifth banking hub – The steps before the agreement of 18 July 2024
The definitive shareholder agreement for the creation of the fifth banking pillar through the merger of Attica Bank and Pankritia Bank, which was approved by the Board of Directors of the Financial Stability Fund (HFS) at its meeting on 18 July 2024, was another milestone in the restructuring of the national banking system.
The HFSF was invited to contribute to the strategic development course and outlook of Attica Bank in 2021, under the guidance of Managing Director Ilias E. Xirouhakis. The Fund’s strategic orientation included covering Attica Bank’s capital needs, finding reliable private investors and rejecting controversial or insufficient solutions, creating conditions that would allow the creation of the fifth banking hub and further strengthening healthy banking competition.
The HFSF entered the share capital of Attica Bank through the Deferred Tax Act at the end of 2021 and after the related planning had provided the necessary impetus for stabilization and reconstruction. In October 2021, the HFSF and Attica Bank reached an agreement on the Fund’s participation in the bank’s share capital increase. On 7 December 2021, the HFSF signed an agreement with private investors TMEDE and Ellington Solutions SA, acquiring shares for a value of EUR 150,765,391.40.
On 17 March 2022, the HFSF signed the Framework Agreement with Attica Bank, setting out the framework for its corporate restructuring and modernisation, following the model of other banks but with variations, as it took into account the fact that Attica Bank is not a systemic bank. The terms of the transaction were amended on 31 January 2022, with a new agreement to be signed on 30 September 2022.
In 2023, important developments took place, such as the exit of Rinoa LTD – Ellington Solutions AE from the investment agreement and the signing of a new investment agreement with Thrivest Holdings LTD and Pankritia Bank for the second capital increase of Attica Bank, which was successfully completed on April 26, 2023, with the pumping of EUR 473,346,868.50, of which EUR 329 million was contributed by the Fund.
According to sources within the Fund, the HFSF has made a decisive contribution to the management of Attica Bank’s non-performing exposures, promoting its inclusion in the “Herakles 3”. The Fund’s contribution to the restructuring of Attica Bank, through improved corporate governance practices, has enhanced transparency and accountability. The Fund has provided technical assistance and oversight of the management structure, significantly improving the bank’s internal processes and efficiency.
More specifically, in 2023, in collaboration with Thrivest, an independent Chairman with experience in risk management and corporate governance was appointed, while new independent board members were elected (following the Fund’s assessment) and the board committees were reconstituted. In addition, a new external auditor was appointed, the role of Regulatory Compliance was improved and close cooperation with the Audit Committee was achieved. At the same time, the role of the Corporate Secretary was modernized, while the functioning of the committees and the Board of Directors became more efficient (timely submission of material, quality record keeping, timely submission of supervisory reports).
According to sources at the FEFG, Thrivest was a reliable co-investor that provided the necessary funds to complete the deal, secured the prospects for the strategic development and new direction of Attica Bank, and at the same time provided the guarantees for the creation of the fifth banking pillar, in order, among other things, to support small and medium-sized entrepreneurship through Attica Bank. It also contributed to strengthening banking competition and the national economy in general.
More generally, the role of the HFSF, the same sources point out, in creating a new era for Attica Bank was catalytic, contributing significantly to the restoration of the bank’s functionality and reliability, strengthening the stability of the Greek banking sector, to the benefit of the national economy and Greek depositors.
The agreement reached according to an information note from the Ministry of Economy and National Finance is the result of:
-The negotiations of the FEFG with private investors, shareholders of the two banks (Thrivest, etc.) and
-The investigation carried out by the international investment bank JP Morgan (at the behest of the EFSF) into the possible interest of other investors in participating in the capital increase at least on the same terms as those agreed with Thrivest. Thus, in parallel with the negotiations with the private investors (Thrivest) and although significant progress had been made on a basic agreement framework, the EFSF asked JP Morgan to “run” a process of investigation into possible investment interests (from international investment houses with extensive experience in such transactions) in participating in a capital increase of Attica Bank on terms at least equal to or better for the Fund than the framework of the basic terms of return on investment of the agreement with the private investor (as it was formulated at the time).
JP Morgan’s process ended unsuccessfully, as it received negative responses to participate in such an investment from all the international investment houses it approached.
With regard to the specific issue of the abovementioned letter from the Governor of the Bank of Greece, it is also noted that: “Despite the efforts made by the current and previous managements of Attica Bank and Pankritia, the search for a strategic private investor with a long-term horizon has not been successful, beyond the existing private shareholder.”
What does the agreement provide for?
1. The share capital of Attica Bank is increased by approximately EUR 730 million, in which HFSF, e-EFKA, Thrivest Holdings and private investors will participate. Of this amount, Attica Bank will immediately repay the Greek State’s Tier2 bond of EUR 100 million, due in 2028, the repayment of which would be extremely uncertain if the agreement were not concluded.
2. The capital increase will be contributed by:
-THS amounting to approximately 475 million euros,
– e-EFKA around 48 million euros.
In other words, the State’s net financial contribution will be approximately €423 million (€475 million from the HFSF plus €48 million from the EFKA minus €100 million which is the repayment of the obligation). In addition, the State will benefit from an additional €44 million that it will not have to pay in 2025 to the new bank created after the merger. The reason is that, on the basis of the agreement, the new regime that will be created after the merger will waive Pancreatia’s current right to activate the deferred tax procedure.
– TMEDE 12 million euros.
3. Trihivest Holdings and private investors will contribute 200 million euros, as well as all shares of Pankritia Bank, which will merge with Attica Bank. Thus, in the calculations, it is obvious that in addition to the monetary value of the contribution, it should be taken into account that the investors will essentially contribute the entirety of Pankritia Bank.
It should be noted that in terms of assets, Pankritia Bank is a bank of similar size to Attica. Specifically, the assets of Attica Bank (size 2023) are €3.77 billion and that of Pankritia €3.45 billion, the deposits of Pankritia are €2.6 billion and that of Attica Bank €3.15 billion, while the profit before tax for the year 2023 amounted to €90.8 million for Pankritia Bank, compared to €28.6 million for Attica Bank. In addition, it should be noted that Pancreatia Bank together with Thrivest Holding already owns 9.4% of Attica Bank.
Systemic banks have declared that they will not participate in the share capital increase.
The new bank, after joining “Herakles”, reduces the percentage of non-performing loans from 60% (which is the weighted percentage of NDEs in Attica and Pancreatia) to 3%, a percentage corresponding to the European average, and will be fully recapitalized with a CET1 ratio above 15%. In this way, all funds (old and new) allocated by the HFSF obtain a positive rate of return (positive IRR).
The new banking hub will be majority owned by individuals with strong minority rights to the FHEF. The exact shareholding percentages will be finalized after the completion of the share capital increase. It is estimated that the shareholding of Trihivest and other private investors will reach up to 58.5%, the FHEF will range between 35-37% and the State as a whole (HFSF + e-EFKA) between 38.5-40%.
In other words, two banks with piles of non-performing loans that are the result of unfortunate and controversial financing in the past and with an uncertain future are not only saved, but with the influx of capital from the public and private sectors are transformed into a strong pillar of the banking system that will operate with fully transparent socio-economic criteria.
E. The sizes of the two benches
Attica Bank’s shareholders today are:
-THS with a rate of 72.5%,
– e-EFKA with a rate of 7.6%,
-Pagree Bank with a rate of 5.0%,
-Thrivest Holding with a percentage of 4.4%,
-TMEDE with a rate of 4%
– and other systemic shareholders and banks with a total percentage of 6.5%.
The shareholders of Pankritia Bank today are:
-Thrivest Holding with a percentage of 43.8%,
-Alfa Ocean Developments with a percentage of 4.0%,
– the National Bank with a rate of 3.6%,
– and other shareholders with a total percentage of 48.7%.
According to banks’ financial data for the 2023 financial year:
Banco Attica has:
– Assets: 3.77 billion euros.
– Grants (after provisions): €2.68 billion.
-Deposits: 3.15 billion euros.
-Equity: 446 million euros.
The Bank of Greece has:
– Assets: 3.45 billion euros.
– Grants: (after forecasts): 2.04 billion euros.
-Deposits: 2.6 billion euros.
-Equity: 251 million euros.