Greece: ATE Bank Restructuring, 2012

Although the Agricultural Bank of Greece (ATE Bank) had begun restructuring in the first half of 2011, its capital situation deteriorated further in the second half of 2011 leading to its resolution (EC 2013). This restructuring plan included a capital injection, the sale of some of ATE Bank’s subsidiaries, a balance sheet reduction, a revenue enhancement program, improved focus on risk management, a new monitoring trustee, and commitments to maintaining a liquidity coverage ratio of more than 50% as well as a hold on purchasing new bonds, participating in proprietary trading activities, paying coupons or dividends, new acquisitions, and a ban on advertising (EC 2011).

The capital situation of ATE Bank deteriorated in the second half of 2011 because of its exposure to the Greek sovereign debt restructuring; privately held Greek bonds ultimately took a 50% haircut in March 2012 (EC 2013; ESM n.d.a). In March 2012, Greek authorities submitted a report from the BoG to the EC assessing options for the resolution of ATE Bank (EC 2013). This assessment was part of a larger assessment of the entire Greek banking sector with the aim of determining which banks were most likely to repay funds granted and resolving the rest (World Bank Group 2016). The report ultimately 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 (EC 2013). Specifically, this report and analysis determined that ATE was not a viable bank based on an assessment of which banks were most likely to repay funds granted (EC 2013). The report considered liquidation as an alternative to the good bank/bad bank approach but found that it would have been more costly and more difficult to implement (EC 2013). The report considered the cost to the Greek state, execution risks, contagion risks, social risks, and funding risks (EC 2013). A press release from the BoG announcing the resolution of ATE Bank and the transfer of viable activities to Piraeus stated these actions were intended to safeguard the deposits of ATE Bank and the financial stability of Greece (BoG 2012).

Piraeus Bank noted in its bid for ATE Bank that the acquisition would improve its viability and market position in Greece (EC 2013). The acquisition made Piraeus Bank the second-largest bank in Greece, rebalanced its loan book, and improved Piraeus’s deposit mix (EC 2013). The HFSF had recapitalized Piraeus Bank multiple times before Piraeus’s purchase of ATE Bank (EC 2014). Following the HFSF’s recapitalization of ATE Bank’s activities purchased by Piraeus, the HFSF had an 81% stake in Piraeus (EC 2014). The EC’s approval of the resolution plan for ATE Bank stated that its approval was contingent on Piraeus Bank submitting a restructuring plan that proved it could maintain its viability after absorbing ATE Bank (EC 2013).

When the European Commission (EC) approved this resolution plan in May 2013, ATE Bank had already received aid in the form of capital injections of EUR 675 million in Tier 1 preference shares and EUR 1.14 billion in ordinary shares (where EUR 675 million repurchased the Tier 1 preference shares from the first injection), a state guarantee to issue debt with a nominal value of EUR 4.70 billion, and a EUR 1.41 billion participation in the Greek bond loan scheme (EC 2013). As of November 2011, the Greek government had an 89.9% stake in ATE Bank (EC 2014).

ATE Bank’s capital position deteriorated further after the EC’s approval of the bank’s initial restructuring plan (EC 2013). ATE Bank received an additional capital injection of EUR 290 million in December 2011 (EC 2013). For further information regarding the June 2011 and December 2011 capital injection, see Schaefer-Brown (forthcoming). In 2013, Piraeus Bank received two more capital injections that were part of the resolution of ATE Bank (EC 2013). Figure 2 shows all of the capital injections ATE Bank received in the period leading up to its resolution and as part of the resolution.

The HFSF Law and Article 63B of Greek Law 3601/2007 (Greek Resolution Law) provided the legal framework for the resolution of ATE Bank (EC 2013; HFSF n.d.a; Hellenic Republic 2007). This process included the sale of specific viable activities of ATE Bank (transferred activities) to another Greek bank, Piraeus Bank, and the resolution of the bank’s nonviable activities via a bad bank (EC 2013).

The BoG acted as the resolution authority to coordinate the purchase and assumption and the resolution of ATE Bank’s activities (EC 2013). The Greek Resolution Law includes provisions in cases where financial stability is a concern, which allowed the BoG to contact a small number of buyers when trying to sell the viable assets of ATE Bank as opposed to having a less restricted auction (EC 2013).

The EC also reviewed the resolution plan and the corresponding capital injections and decided that the transfer of the transferred activities to Piraeus Bank did not constitute State Aid (EC 2013). The EC decided that the three capital injections in connection with the resolution of ATE Bank did constitute State Aid; however, such aid was compatible with the internal market pursuant to the Treaty on the Functioning of the European Union (EC 2013). The EC noted that the capital injection of EUR 290 million was in breach of Article 108(3) of the Treaty on the Functioning of the European Union (EC 2013).

The BoG acted as the resolution authority and as such was able to facilitate the purchase and assumption and the resolution of ATE Bank’s activities (EC 2013). In May 2012, the BoG began the auction process for ATE Bank’s transferred activities by contacting two international investment banks and the four viable Greek systemic banks (EC 2013). Two Greek banks submitted bids, but because these banks had received aid from the HFSF, they needed the HFSF to approve their bids (EC 2013).

The BoG appointed PQH Single Special Liquidation SA as special liquidator in 2016 (Javaid 2016). This was also a commitment under the memorandum of understanding, which also required future fees be “performance based” when liquidation proceeds stalled.

The BoG committed to the EC that it would monitor the integration of ATE Bank’s transferred activities into Piraeus Bank and the resolution of the bad bank (EC 2013). A trustee was already in charge of monitoring the commercial policy of Piraeus Bank; this role was expanded to include monitoring of the commitments from Piraeus Bank in regard to the integration of ATE Bank’s transferred activities (EC 2013). These commitments are detailed in Figure 3. The BoG was responsible for making annual reports to the EC regarding the commitments of the Greek authorities in regard to the winding down of the bad bank, as seen in Figure 5 (EC 2013).

On July 27, 2012 the BoG issued a press release announcing that Piraeus had absorbed the “sound” part of ATE Bank (BoG 2012). This announcement cited safeguarding ATE Bank’s deposits and Greek financial stability as the reasons for the merger (BoG 2012). On the same day, ATE Bank announced that its operating license had been revoked by the governor of the Bank of Greece and its healthy assets had been transferred to Piraeus Bank (ATE Bank 2012). This announcement stated that the change in ownership would not change the operations of the bank (ATE Bank 2012). On November 28, 2012, the EC responded to questions from the European Parliament regarding the resolution of ATE Bank (European Parliament 2012). This response noted the Bank of Greece had determined ATE Bank was “non-viable” and “loss-making” and gave updates on the sale of ATE Bank’s transferred activities (European Parliament 2012).

On January 28, 2013, the BoG found the final assets/liabilities gap of the ATE Bank’s transferred activities was EUR 7.47 billion and the capital needs resulting from the transferred activities were EUR 570 million (EC 2013). The gap was primarily a result of all deposits being transferred to Piraeus and most nonperforming loans (NPLs) being transferred to the bad bank; only a few NPLs were transferred to Piraeus, when authorities concluded they would be likely to recover some value. The HFSF injected EUR 570 million in EFSF bonds into the transferred activities so that Piraeus was adequately capitalized up to 9% (EC 2013; HFSF 2013). The HFSF also injected EUR 7.47 billion in EFSF bonds into the transferred activities to make up the assets/liabilities gap (EC 2013). EFSF bonds are floating-rate notes from the EFSF used to recapitalize banks (HFSF 2013). The HFSF received these funds after an agreement was reached between the BoG and the EFSF (ESM n.d.b). The funds were loans from the EFSF to Greece (ESM n.d.b). As of 2015, the outstanding amount of loans from the EFSF to Greece was EUR 130.9 billion (ESM n.d.b).

European countries created the EFSF in 2010 as a temporary crisis resolution mechanism and provided financial assistance to Ireland, Portugal, and Greece (EC n.d.). The EFSF financed its assistance through bonds and other debt instruments (EC n.d.). The HFSF is a private legal entity and does not belong to the public sector. However, it is funded by European Stability Mechanism (ESM) loans via the Greek government (HFSF n.d.b).The ESM was eventually created in 2012 as a permanent crisis resolution mechanism, and all subsequent Greek funding was through the ESM.

In March 2012, Greece conducted an assessment of the entire Greek banking sector with the aim of determining which banks were viable and therefore eligible for potential state support (World Bank Group 2016). Banks deemed not viable were given the opportunity to raise the necessary capital privately. If a bank required capital that it was unable to raise, it would then be resolved/liquidated (World Bank Group 2016). The assessment took into consideration how likely each bank would be to repay funds if given them. This resulted in the selection of systemically important banks, which Greece concentrated state support on and which acted as the main pillars of the Greek financial system, with a capacity to absorb other resolved banks (Andruszkiewicz et al. 2020).

In May 2012, the BoG began the auction process for ATE Bank’s transferred activities by contacting two international investment banks and the four viable Greek Bank’s (EC 2013). There was no foreign interest, but Piraeus Bank and Eurobank submitted nonbinding offers to the Hellenic Financial Stability Fund (EC 2013). Because these banks had been affected by the Greek sovereign debt crisis and already received aid from the HFSF, they needed the HFSF to approve their offers (EC 2013). On July 24, 2012, Eurobank revoked its offer (EC 2013). On July 26, 2012, the HFSF approved Piraeus Bank’s offer of EUR 95 million to the bad bank to facilitate the immediate operations of the bad bank (EC 2013). The transfer of ATE Bank’s selected assets and liabilities to Piraeus Bank began on July 27, 2012 (EC 2013).

Figure 3 shows the breakdown of which activities were part of ATE Bank’s transferred activities and which remained with the bad bank (EC 2013). In commitments made to the EC, the BoG committed to appointing a special liquidator in charge of the bad bank (EC 2013). Piraeus Bank submitted a plan for the integration of ATE’s transferred activities with its bid for the transferred activities (EC 2013). Piraeus paid EUR 95 million to the bad bank and received the transferred activities, including capital injections from the HFSF into Piraeus  covering the assets/liabilities gap and adequately capitalizing the transferred activities (EC 2013). Figure 4 shows the assets and liabilities of the capital injections for each entity involved in the recapitalization process. In total, Piraeus received EUR 21.6 billion in assets and equal liabilities (Piraeus 2014).

Figure 3 shows which activities were transferred to Piraeus and which remained with the bad bank. Depositors were transferred to Piraeus (EC 2013). Creditors and equity holders of ATE Bank remained with the bad bank (EC 2013). As of November 2011, the Greek government had a 89.9% stake in ATE Bank (EC 2014). Research has not indicated that creditors and equity holders received any money from the resolution of the bad bank. The HFSF had priority claim over claims of unsecured creditors of the bad bank and as of 2021 was still recouping funds from the liquidation of the bad bank (EC 2013; HFSF 2022).

Figure 3 shows which activities were transferred to Piraeus and which remained with the bad bank. Broadly, viable activities were transferred to Piraeus while nonviable activities remained in the bad bank (EC 2013).

Figure 3 shows which assets were part of ATE Bank’s activities transferred to Piraeus Bank and which remained in the bad bank. Viable assets were transferred to Piraeus while nonviable assets remained in the bad bank (EC 2013).

The directors, management, and personnel of ATE Bank were assessed by Piraeus Bank (EC 2013). Piraeus announced the merger on July 27, 2012, and ensured all employees of ATE Bank would keep their jobs, stating that “together both forces, executives and employees of Piraeus Bank and Agricultural Bank, create a sound domestic financial institution” (Athens News Agency 2012). This was primarily to mitigate the political impact associated with letting state employees go. ATE Bank employees who moved to Piraeus received a new private sector contract from Piraeus with a nine-month probation period. This meant that there was not an immediate impact of letting go employees while also allowing Piraeus to release any staff deemed unnecessary at the end of the probation period.

Research has not revealed further cross-border cooperation in connection with the restructuring and resolution of ATE Bank.

Figure 5 shows the commitments made by the Greek authorities in the May 3, 2013, EC decision, and Figure 6 shows the commitments made by Piraeus Bank in the same decision.

The transfer of ATE Bank’s viable activities took place in July 2012 (ATE Bank 2012; EC 2013). As of 2021, the HFSF had received EUR 550 million and estimated it could still receive EUR 658 million. At this point, impairments totaled EUR 6.26 billion (HFSF 2022).