Greece: ATE Bank Capital Injection, 2011

ATE Bank began experiencing difficulties because of poor asset quality before the Greek sovereign debt crisis. Then during the sovereign debt crisis, ATE Bank lost access to international debt markets, which, along with a widespread loss of confidence in Greek banks, severely affected ATE Bank’s liquidity. In 2009, ATE Bank’s asset quality continued to deteriorate (EC 2011b).

In November 2008, the EC approved a package of support measures for Greek banks. As part of this package, ATE Bank received a capital injection of EUR 675 million in Tier 1 preference shares on May 21, 2009 (EC 2011b). Part of this plan included a stipulation that the Tier 1 preference shares would be repurchased by the central bank within five years (EC 2008).

In October 2010, Greek authorities submitted a restructuring plan for ATE Bank to the EC, which the EC approved in May 2011. In this period, the Bank of Greece sent a letter to the EC indicating that the capital needs of ATE Bank were EUR 585 million, and therefore a capital increase of that amount was necessary. Greek authorities submitted a finalized restructuring and recapitalization plan to the EC on April 28, 2011. This included an ordinary share capital increase of EUR 1.26 billion, of which EUR 675 million would be used to repurchase the EUR 675 million of Tier 1 preference shares bought by the Greek state in May 2009. Of the total, private investors would provide EUR 115 million (ATE Bank 2011c; EC 2011a). After the repurchase of these preference shares, the net capital increase was EUR 585 million. This value reflects the capital needs of ATE Bank after the Bank of Greece raised ATE Bank’s minimum capital adequacy ratio from 8.9% to 12.1%. On April 29, 2011, ATE Bank shareholders approved the capital increase (EC 2011b; EC 2013).

In December 2011, the bank made an additional rights offering to raise EUR 290 million from existing shareholders, to comply with regulatory requirements, following a shareholder vote on November 15. As virtually no private investors participated, the government invested the entire EUR 290 million, bringing its stake up to 93% (EC 2013).

The guarantee was granted on EUR 4.7 billion notes issued by ATE as of April 18, 2011. ATE Bank paid the state a renumeration of up to 80 basis points before June 2011 and 145 basis points afterward (on the nominal amount of the notes) (EC 2011b). ATE Bank retained these notes and could use them as collateral to borrow from the central bank (EC 2011b). For more information on Greek ELA, see Runkel (2022); for details of the Greek Credit Guarantee Scheme, see Thompson (2020).

By April 18, 2011, ATE Bank had also acquired EUR 1.4 billion in zero coupon notes issued by the state under the bond loan scheme, which could also be used as collateral to borrow from the central bank. ATE Bank received EUR 807 million in 2009, which matured in December 2011, and EUR 600 million in June 2010, which matured in 2013 (EC 2013). ATE bank paid 80 basis points of renumeration on the nominal amount of the notes every year (EC 2011b).

ATE Bank’s capital position deteriorated further after the EC’s approval of the bank’s restructuring plan. Between November 2011 and May 2013, ATE bank received three additional capital injections in different forms and amounts (EC 2013). Figure 2 shows all of the capital injections ATE Bank received.

Sources: EC 2011b; EC 2013; HFSF 2013. 

From October 2010 to May 2011, the EC and Greek authorities communicated about a restructuring and recapitalization plan for ATE Bank. On April 28, 2011, Greek authorities notified the EC of ATE Bank’s need for a capital increase of EUR 585 million. ATE Bank also needed to repurchase EUR 675 million in Tier 1 preference shares from an earlier capital injection per the Greek authority’s agreement with the EC and Greek Law 3723, which Greek authorities had passed as part of the 2008 aid package for Greek Banks. Therefore, the capital increase Greek authorities proposed to the EC on April 28, 2010, was EUR 1.26 billion in ordinary shares (EUR 675 million + EUR 584.5 million) (BoG 2014, 52; EC 2008; EC 2011b).

On April 29, 2011, ATE Bank’s shareholders approved a capital increase of EUR 1.26 billion, of which the Greek state would contribute EUR 1.14 million and private investors would contribute EUR 115 million. On May 23, 2011, the EC approved the same capital increase (EC 2011b; EC 2013).

The same Greek Law 3723 authorized the government’s credit guarantee and bond loan scheme (Hellenic Republic n.d.).

In October 2010, Greek authorities submitted a restructuring plan for ATE Bank to the EC for approval. This plan was updated through further communication between the EC and Greek authorities. One update was a capital injection of EUR 1.14 billion from the Greek state into ATE Bank. Greek authorities notified the EC of this capital injection on April 28, 2011; the EC approved the injection and restructuring plan on May 23, 2011. The shareholders of ATE Bank had approved this capital injection on April 29, 2011 (EC 2011b; EC 2013).

The EC outlined requirements for a monitoring trustee in its approval of the restructuring and recapitalization plan. ATE Bank was to submit one or more nominees for the trustee position to the Director-General for Competition at the EC (DG Comp) who could reject the nominees. If the initial nominees were rejected, ATE Bank would put forward at least two more nominees, and if these were also rejected by DG Comp, DG Comp would nominate a trustee who ATE Bank was required to appoint. The responsibilities of the monitoring trustee included proposing a work plan to the EC regarding compliance monitoring, monitoring all commitments ATE Bank made to the EC in connection with the restructuring and recapitalization plan, proposing measures to ATE Bank it deemed necessary to ensure compliance, and providing the EC with a nonconfidential written report at the end of each semester and business year (EC 2011b).

The EC put out a press release on May 23, 2011, discussing its approval of ATE Bank’s restructuring and resolution. The EC’s vice president in charge of competition policy said that “ATE’s restructuring plan contains adequate measures to tackle the bank’s weaknesses and minimize distortions of competition” (EC 2011a).

Also on May 23, 2011, ATE Bank announced that the EC had approved its restructuring plan and share capital increase. This announcement stated the restructuring and share capital increase would “strengthen [ATE Bank’s] capital adequacy and improve its long-term efficiency” (ATE Bank 2011a).

ATE Bank also made announcements at the beginning and end of the share capital increase and when it repurchased the Greek state’s EUR 675 million in preference shares (ATE Bank 2011b; ATE Bank 2011c; ATE Bank 2011d).

The share capital increase gave the existing shareholders a right to purchase with a ratio of 13 new common registered voting shares to 1 old common registered voting share. This involved the issuance of 1.2 billion new common registered shares, with voting rights at the nominal value of EUR 0.6 each and an issue price of EUR 1.1 for each new share. This resulted in ATE Bank’s total share capital being EUR 1.4 billion: 1.3 billion common registered voting shares with a nominal value of EUR 0.6 each and 937.5 million redeemable nonvoting shares owned by the Greek state with a nominal value of EUR 0.7 each (ATE Bank 2011b; ATE Bank 2011c). As of November 2011, the Greek government had a 89.9% stake in ATE Bank (EC 2014).

In July 2012, all ATE Bank shareholders, including the Greek state, as well as subordinated debt investors, were wiped out when Piraeus Bank purchased ATE Bank’s viable activities. Subordinated obligations totaled EUR 249 million as of September 2011 (ATE Bank 2011e; EC 2013).

The capital injection of EUR 1.14 billion was part of a larger ordinary share capital increase of EUR 1.26 billion, through a rights issue. ATE Bank, Greek authorities, and the EC agreed that up to EUR 1.14 billion could be subscribed by the Greek state and at least EUR 115 million would be subscribed by market investors and fully underwritten by a syndicate of banks (EC 2011b). Alpha Bank, EFG Eurobank Ergasias, National Bank of Greece, Piraeus Bank, and Marfin Popular Bank acted as coverage guarantors for the share capital increase. In total, these banks received 42.7 million shares based on what percentage of coverage the banks had undertaken (ATE Bank 2011c). On April 29, 2011, the shareholders of ATE Bank established the terms for the capital increase (ATE Bank 2011b).

Initially, the Greek state put in EUR 974 million by fully exercising its pre-emptive rights, based on its 77% stake (ATE Bank 2011c; EC 2011b; EC 2013). Other investors did not fully take up the 23% of shares that they had a right to purchase. As a result, the government put in an additional EUR 170.8 million, raising its stake to 90% (ATE Bank 2011b; ATE Bank 2011c). In total the government contributed EUR 1.14 billion.

On July 18, 2011, ATE Bank repurchased the EUR 675 million in preferred shares owned by the Greek state (ATE Bank 2011d).

Greek authorities, who were the bank’s majority shareholders, agreed on a capital injection of up to EUR 1.14 billion from the Greek state, with the approval of the EC. The Greek state injected EUR 1.14 billion (ATE Bank 2011c; EC 2013). This was part of an ordinary share capital increase of EUR 1.26 billion, where EUR 675 million would be used to repurchase the EUR 675 million of Tier 1 preference shares for a net capital increase of EUR 584.5 million. The net capital increase reflected the capital needs of ATE Bank after the Bank of Greece raised ATE Bank’s minimum capital adequacy ratio from 8.9% to 12.1% (EC 2011b).

When the Greek government purchased the initial EUR 675 million of Tier 1 preference shares in ATE Bank in 2009, it paid by issuing government debt to ATE Bank. That debt remained on ATE Bank’s balance sheet in 2011 (ATE Bank 2011e). However, the government used cash in the 2011 transactions (ATE Bank 2011f; BoG 2012). According to the Bank of Greece annual reports for 2011 and 2012, the total cost of the capital injection and proceeds from a bond reopening paid for by the Greek state and used to buy shares in the National Bank of Greece and Piraeus Bank was EUR 1.43 billion (BoG 2012; BoG 2013).

In November 2008, the European Commission (EC) approved a package of aid for Greek banks. As part of this package, in 2009 ATE Bank received a capital injection of EUR 675 million in Tier 1 preference shares (EC 2011b).

In October 2010, Greek authorities submitted a restructuring plan for ATE Bank to the EC for approval. On April 28, 2011, Greek authorities updated the EC regarding the capital needs of ATE Bank and proposed a capital increase of EUR 1.26 billion from the Greek state. As part of this, the shareholders of ATE Bank approved a capital injection of EUR 1.14 billion on April 29, 2011 (EC 2011b; EC 2013). The EC approved the injection and restructuring plan on May 23, 2011. The capital increase took place throughout June 2011, with the Greek state contributing the entire EUR 1.14 billion approved by the EC (ATE Bank 2011c). In July 2011, ATE Bank repurchased the EUR 675 million in preferred shares owned by the Greek state (ATE Bank 2011d).

The capital situation of ATE Bank deteriorated further in the second half of 2011 because of the 50% haircut of its Greek bonds. In March 2012, the Bank of Greece submitted a report to the Greek authorities that recommended the resolution of ATE Bank through a purchase and assumption of specific assets and liabilities followed by the resolution of the remaining nonviable assets and liabilities through a bad bank. In July 2012, ATE Bank’s viable activities were purchased by Piraeus Bank. ATE Bank’s nonviable activities remained with a bad bank to be liquidated by a special liquidator (EC 2013; ESM n.d.). As of 2021, ATE Bank was still being liquidated (HFSF 2022).

In addition to the capital injection, the restructuring plan included:

• The sale of most of ATE Bank’s non-financial sector subsidiaries and participation in specified banks and companies by December 31, 2012
• Divesting from specified non-financial companies and banking companies by July 1, 2012
• Balance sheet reduction of 25.7%, a loan portfolio reduction of 13%, and an outstanding deposit reduction of 21% by December 2013
• Cost reduction of 25% by 2013
• A revenue-enhancement program, improved focus on risk management, new corporate governance measures, and a new monitoring trustee
• A commitment to maintain a coverage ratio of more than 50%
• A commitment to refrain from purchasing new bonds, participating in proprietary trading activities, paying coupons or dividends, or making new acquisitions, as well as a ban on advertising (EC 2011b).

The EC also required the monitoring trustee to submit semi-annual monitoring reports on the restructuring process and commitments (EC 2011b).

Later, in 2012, the Greek state resolved ATE Bank through purchase and assumption and a bad bank (EC 2013).

When the Greek state initially recapitalized ATE Bank in 2009, it was entitled to having a representative with some veto powers appointed to ATE Bank’s board of directors (EC 2008). In the 2011 restructuring plan, the EC required that the supervisory and monitoring functions of ATE Bank’s board of directors instead be entrusted exclusively to the Supervisory Board. The monitoring trustee and the Bank of Greece monitored this commitment (EC 2011b).

Law 3723, which authorized the 2009 capital injection and the bond loan and credit guarantee schemes, came with additional commitments to limit participating institutions from expanding their activities. Specifically, during the implementation period, participating institutions’ total assets average increase could not exceed the highest out of: the annual growth rate of the previous year’s nominal GDP, the average rate of increase of the Greek banking sector’s total assets from 1987 to 2007, or the average rate of increase of the EU banking sectors total assets for the previous six months (Hellenic Republic n.d.).  

Research has not revealed any evidence of regulatory relief. However, in the first quarter of 2011, the BoG raised ATE Bank’s minimum capital adequacy ratio from 8.9% to 12.1% (EC 2011b).

In 2010 the capital injection of EUR 1.14 billion was used in part to repurchase the EUR 675 million in Tier 1 preference shares from an earlier capital injection (EC 2011b).

After this, the capital situation of ATE Bank deteriorated further in the second half of 2011 owing to its exposure to Greek bonds. Ultimately, the Greek state resolved ATE Bank in 2012 through the purchase and assumption of some assets and liabilities by Piraeus Bank and the resolution of the remaining assets and liabilities through a bad bank. The government wrote off the investments it made in the bank in 2011 and injected further capital in 2013, ultimately losing more than EUR 6 billion (EC 2013; ESM n.d.).