Top-4 (core) banks released 9M’12 (as well as H1’12) results on December 20 & 21. Unlike previous quarters, the key focus was on the disclosure of their capital needs rather than their financial performance, which mainly reflected the prevailing adverse macro conditions, particularly in the Greek market. In particular, Alpha Bank said that its capital needs amounted to €4.6bn, Eurobank at €5.8bn, National Bank at €9.7bn and Piraeus Bank at €7.3bn, implying a total of €27.4bn, which have already been provided (or will soon be) by HFSF in the form of EFSF notes.

It is also noteworthy that Alpha did not hold a conference call for the first time, Piraeus noted that the minimum amount for its rights issue (to reach a common equity core Tier I target of 6%) stands at €5.4bn, while the management of the Eurobank and National refrained from providing any details on the amount of the upcoming share capital increases, most likely due to National voluntary tender offer to Eurobank shareholders, which is expected to be completed by mid February. Furthermore, since most banks’ (excluding Alpha) 9M’12 pro-forma core Tier I capital is smaller than HFSF capital advance, it is clear that the starting point for calculating capital requirements to reach the 6% threshold is negative, implying that the bulk of capital advances will be ‘converted’ to common shares in the upcoming recapitalisation process.

On December 27, BoG released the long-awaited report on the recapitalisation and restructuring of the Greek banking sector as well as the diagnostic assessment of Greek banks conducted by Blackrock. We summarize below the key highlights:

• The capital needs of all Greek banks amount to €40.54bn, while the respective amount for the top-4 (namely Alpha, Eurobank, National and Piraeus) stands at €27.5bn. The latter is in line with the figure (c€27bn) rumoured since last May. More specifically, capital needs stand at €9,756m for National, €7,335m for Piraeus, €5,839m for Eurobank and €4,571m for Alpha.

• From the non-core banks, ATEbank (resolved in July ‘12) capital needs amount to €4.92bn, Hellenic Postbank at €3.74bn and Emporiki at €2.48bn, while the capital requirements for the remaining small banks do not exceed the €400m mark per bank.

• The aforementioned capital needs were estimated by BoG in May ’12. In October ’12, BoG reviewed the capital needs assessment in light of H1’12 preliminary financial results and confirmed that the conservatively estimated capital needs were adequate.

• The recapitalisation process for core banks comprises three steps: 1) Bridge recapitalisation by the HFSF i.e. a capital advance (ahead of the capital increases) which has been completed in December ’12. 2) Issuance of contingent convertible bonds (CoCos) by the end of January ’13. The amount will be determined by banks in accordance with the recapitalisation framework, while the instruments will be fully subscribed by the HFSF. 3) Completion of share capital increases by the end of April ’13, which will be fully underwritten by HFSF. It is reminded that private shareholders will retain control of the core banks provided they have subscribed no less than 10% of the newly issued common shares.

• Non-core banks must be recapitalised from private sources by the end of April ‘13. They may also merge with other banks if they can demonstrate a credible business plan and meet recapitalisation needs by April ‘13. If private shareholders are unable to support these banks, BoG will proceed with the required steps for an orderly resolution by no later than June ’13 with the aim to safe-guard financial stability and depositors’ interests.

• Gross credit loss projections (CLPs) over the June’11 – Dec ’14 period amount to €46.83bn for the sector and €31.37bn for top-4 banks. The aforementioned CLPs involve Greek loan portfolios (€36.8bn), foreign loans (€8.2bn) and state-related loans (€1.8bn). Greek loan CLPs incorporate: 3-year CLPs estimated by Blackrock, a fourth year of CLPs and credit risk for the new production. Gross CLPs amount to €8,493m for Alpha, €8,366m for National, €8,226m for Eurobank and €6,281m for Piraeus. From the non-core banks, Emporiki CLPs stand at €6,351m, ATEbank at €3,383m, Geniki at €1,552m and Hellenic Postbank at €1,482m.

• Against the aforementioned CLPs, accumulated provisions by YE’11 amounted to €24.7bn for the sector corresponding to 52.8% of CLPs and €14.6bn for core banks (46.5% of CLPs). In particular, National loan loss reserves amounted to €5,390m (64.4% of CLPs), Eurobank at €3,514m (42.7% of CLPs), Alpha at €3,115m (36.7% of CLPs) and Piraeus at €2,565m (40.8% of CLPs). It should be noted that taking also into account the additional impairment losses recorded in 9M’12 (€5.6bn for top-4 banks), core banks’ accumulated provisions have increased to €20.2bn at the end of September ’12 (from €14.6bn at YE’11).

• Gross PSI loss stood at €37.7bn for the sector (corresponding to 1.7x core Tier I at YE’11) and €28.2bn for top-4 banks. In particular, National PSI loss amounted to €11.7bn (equivalent to 161% of core Tier I at YE’11), Eurobank at €5.8bn (164.5%), Alpha at €4.8bn (106%), Piraeus at €5.9bn (226%), ATEbank at €4.3bn (1,144%) and Hellenic Postbank at €3.4bn (618%).

• Based on banks’ business plans over the period 2012-14, conservatively stressed according to BoG methodology, internal capital generation amounts to €11.4bn for the sector almost entirely stemming from core banks (€11.1bn) with the respective figures standing at €4.7bn for National, €2.9bn for Eurobank, €2.4bn for Alpha and €1.1bn for Piraeus.

• On top of the aforementioned €40.5bn for bank recapitalisation and resolution costs, BoG noted that the financial envelope estimation of €50bn is appropriate and also incorporates: 1) the net impact (€1.4bn) of completed resolutions (for three commercial banks, namely ATEbank, Proton Bank and T-Bank and three cooperative banks) and recapitalisations of two foreign subsidiaries (namely Emporiki Bank and Geniki Bank by their parent banks Credit Agricole and Societe Generale respectively) 2) cost of potential future restructuring (€3.1bn) and 3) a capital buffer (€5bn) taking into account potential developments such as further deterioration of macroeconomic conditions and debt buyback.