Greece: Piraeus Bank Capital Injection, 2015

Abstract

Greek banks' reliance on liquidity assistance from the Eurosystem began in August 2011, with a second peak in 2015; emergency liquidity assistance was fully repaid in 2019. The European Central Bank's Single Supervisory Mechanism, responsible for banking supervision in Europe, conducted a stress test and asset quality review of the four large Greek banks and identified a capital shortfall of EUR 4.7 billion for Piraeus Bank (the Bank) in October 2015. To cover this capital shortfall, in December 2015, the Hellenic Financial Stability Fund (HFSF), a private legal entity working to maintain the stability of the Greek banking system, recapitalized the Bank. The HFSF injected EUR 2.72 billion in European Stability Mechanism Notes and acquired EUR 680 million in ordinary shares and EUR 2.04 billion in contingent convertible capital instruments (CoCos) which gave the HFSF a 26% stake in the Bank. In November 2015, the Greek Parliament amended two laws to specify characteristics of the injection and allow recapitalization, and the European Commission approved a recapitalization and revised restructuring plan, which had been previously approved in July 2014. By December 1, 2015, the European institutions (European Commission, European Central Bank and European Stability Mechanism) had all approved the Greek plan to further recapitalize and restructure Piraeus Bank. In 2021, the Bank did not make the annual CoCos' coupon payment after previously missing a payment in 2018, so the CoCos converted into shares and the HFSF became the majority shareholder of the Bank. By the end of the year, the Bank sold shares in a public offering, leading to a reduction in the HFSF's stake to 27%. 1 This case study is part of a Yale Program on Financial Stability (YPFS) selection of New Bagehot Project modules considering ad hoc capital injections. A survey of all the cases in this series (Rhee, Hoffner, et al. 2024) and the individual cases underlying it are available from the Journal of Financial Crises at https://elischolar.library.yale.edu/journal-of-financial-crises/vol6/iss3/1/. Rhee, Oguri, et al. 2022 surveys broad-based capital injection programs.