National Bank of Greece ADR Executive Insights: Recapitalization, ECB Funding

On Wednesday, National Bank of Greece ADR (NYSE:NBG) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Recapitalization

Sachin Shah – Morgan Stanley: I just wanted a bit more information on the nature of the recapitalization. Firstly, what exactly where the bonds that you’ve given in terms of maturity coupon, et cetera? How much more are you expecting from the Financial Stability Fund. Have you made any expectations on that? What will the Financial Stability Fund exactly be getting in return for the bonds that were delivered? Finally, do you expect there to be any impact on your ability to pay coupons on any of the subordinated debt securities?

Anthimos Thomopoulos – Deputy CEO: As you know the capital contribution was made in the form of EFSF bonds with maturities varying from 2018 to 2022 with an average mark-to-market of round 98.5% or 99%. So, there was a total of €7.4 billion worth of nominal value of EFSF bonds, which were booked at around 98.8, something like that in our accounts. Now, how much more? I think we get into a point where the Bank of Greece is finalizing its calculations for the total recapitalization needs. We haven’t finalized the number, but you can get a feeling of what we are up for. If you just take into account that by Q3 this year, the Bank should have a core equity ratio of over 10%. So, basically, we will be – allotted the necessary amount to reach 10% core equity by, say, 2012 and this is near certainty and it is only depending upon the second tranche of bank recap money coming into Greece. Sorry, I just said 10%, I meant 9% core equity. So, the securities – or that will be given to HFSF to the Greek financial stability funds in consideration of the contribution gets in place is yet to be decided. You know that the whole recapitalization framework will be debated and agreed upon post-elections. So, it will be a mix of common equity and mandatory convertible of contingent capital. We understand from the broad brush of framework that is already been enacted in Greek law. But details will be decided as I said post elections. On the coupons, coupons on – on our subordinated to hybrid transactions, on subordinate transactions or Tier 2 transactions, there hasn’t been no issue whatsoever. These coupons will be paid as they come due. On the hybrid transactions, we have made a clear statement, doing our liability management exercise that that will be paid based on the economic merit of paying these coupons. So that’s a pretty standard language to the points to a one-way street basically. That’s it.

ECB Funding

Alex Atienza – Citigroup: I just have two quick questions actually, the first one is if you could give me color on why customer loans at Group level has decreased quarter-on-quarter quite a bit? Second one if you could give the breakdown on ECB funding, what ECB and what is coming from DLA? Thank you.

Anthimos Thomopoulos – Deputy CEO: As I said, there are two regions in Greece and Southeastern Europe, there is top line gross loan deleverage. So, that explains and this is more on the increase of loan book, more than makes up the difference, the positive contribution of Turkey. On the ECB, the financing as you know is temporarily the full €32 billion were shifted from ECB (indiscernible) to ELA. We expect this to reverse today following the recap. We don’t know the precise numbers, but we believe that we should be able to draw a good €25 billion to €26 billion from the ECB refinancing operations with the balance being drawn from Emergency Liquidity Assistance. Now, the situation we have been in much better. We would have been able to reduce ELA by an additional €6 billion had we hadn’t the recent downgrade of Greece post May 6th elections which disqualified the entirety of our Covered Bond program that has been used to access the ECB refinancing operations. In plain English, if we see the causes of the downgrade to reverse in the new future as a result of a more stable political environment, we have a fighting chance that this may impact or may qualify our Covered Bond program again in which case our ELA exposure will be more or less eliminated. But as we stand, we will be drawing anything between €6 billion to €7 billion from ELA if we were to do that tomorrow.

Sachin Shah – Morgan Stanley: I just wanted a bit more information on the nature of the recapitalization. Firstly, what exactly where the bonds that you’ve given in terms of maturity coupon, et cetera? How much more are you expecting from the Financial Stability Fund. Have you made any expectations on that? What will the Financial Stability Fund exactly be getting in return for the bonds that were delivered? Finally, do you expect there to be any impact on your ability to pay coupons on any of the subordinated debt securities?

Anthimos Thomopoulos – Deputy CEO: As you know the capital contribution was made in the form of EFSF bonds with maturities varying from 2018 to 2022 with an average mark-to-market of round 98.5% or 99%. So, there was a total of €7.4 billion worth of nominal value of EFSF bonds, which were booked at around 98.8, something like that in our accounts. Now, how much more? I think we get into a point where the Bank of Greece is finalizing its calculations for the total recapitalization needs. We haven’t finalized the number, but you can get a feeling of what we are up for. If you just take into account that by Q3 this year, the Bank should have a core equity ratio of over 10%. So, basically, we will be – allotted the necessary amount to reach 10% core equity by, say, 2012 and this is near certainty and it is only depending upon the second tranche of bank recap money coming into Greece. Sorry, I just said 10%, I meant 9% core equity. So, the securities – or that will be given to HFSF to the Greek financial stability funds in consideration of the contribution gets in place is yet to be decided. You know that the whole recapitalization framework will be debated and agreed upon post-elections. So, it will be a mix of common equity and mandatory convertible of contingent capital. We understand from the broad brush of framework that is already been enacted in Greek law. But details will be decided as I said post elections. On the coupons, coupons on – on our subordinated to hybrid transactions, on subordinate transactions or Tier 2 transactions, there hasn’t been no issue whatsoever. These coupons will be paid as they come due. On the hybrid transactions, we have made a clear statement, doing our liability management exercise that that will be paid based on the economic merit of paying these coupons. So that’s a pretty standard language to the points to a one-way street basically. That’s it.