Banks being returned to private hands: The process and challenges

The countdown for the exit of the state from the four systemic banks and Attica Bank has begun, with the launch of the tender to determine the strategic disinvestment of the Hellenic Financial Stability Fund, which is expected to be completed before the end of the year.

Sources close to the matter tell BusinessDaily that in mid-August the tender was announced for the selection of the consultant, who will draw up the road map for the privatization of the banks. However, HFSF already has a disinvestment strategy in place since 2018, which will be updated through the current process. The percentages currently held by HFSF in the banks are 40.39% in National Bank, 27% in Piraeus Bank, 9% in Alpha Bank and 1.4% in Eurobank. The fund is also a majority shareholder in Attica Bank where it holds a 62.93% stake. According to the schedule, the deadline for submitting binding offers expires in the next few days, which will be examined with financial and qualitative criteria. The tender, according to the same sources, is targetting the largest international investment banks and strong interest has already been expressed. In any case, though, the announcement excludes from the process leading market players already cooperating with banking institutions, as this would raise the issue of a conflict of interest.

The consultant who will be selected will have a period of one month to prepare the road map of the disinvestment, which will then be sent for comments to the Ministry of Finance and HFSF. The final approval of the strategy will be given by the Ministry of Finance "which may previously request the opinion of the Bank of Greece" as expressly stated in the law on HFSF passed last June. The strategy will describe in detail the procedure for disposing of the state's shares, as well as the conditions that should be met. The new framework established provides that the disposal can be made in parts or once, at the discretion of the fund and in compliance with the rules on state aid. The disposal of the shares cannot be made to a company which belongs directly or indirectly to the state in accordance with the current legislation.

Once the disinvestment strategy is validated, HFSF is at any time able to proceed with a sale of shares. The process of attracting investors will be executed by the Investment Advisor - a role usually played by international investment banks. According to the law, HFSF will propose three suitable advisers to the Ministry of Finance, which has the right to back one. The final selection will be made by the fund. Once the process matures and HFSF selects a specific investor based on a bid, a third consultant will be involved, who will decide whether the considered price is fair according to market conditions.

Strong investor interest

Market sources report that there has already been strong interest from well-known and lesser-known investment funds to enter Greek banks. They estimate that for prospective investors the timing is right, given the discount at which banking shares are still traded. This view seems to be shared by the Bank of Greece which, according to sources, exerted intense pressure on the management of HFSF in order to speed up the tender for the strategy. The same sources speak of a "great improvement" in HFSF's procedures recently, and expect their completion before the end of the year. 

The timing, however, which the government will choose to fully privatize the banks, remains unknown, thus definitively closing the last - perhaps - active chapter of the memorandum era. Typically, once the disinvestment strategy is drawn up and approved, HFSF will be able to accept investment proposals which will then be evaluated as per the process. Market players estimate that, since Greece remains outside the investment grade, the interest will come from high-risk funds - many of which have been placed in important sectors of the domestic economy in the last decade.