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Financial black out. What next after "Black Wednesday"

The pressures on the Athens Stock Exchange will continue until more clarity is available, Morgan Stanley predicts in a note that echoes almost all of the stock market's feelings after yesterday's sell-off of Greek bank stocks.

At the same time, Morgan Stanley writes that it finds concerns about the Greek banks' funds are exaggerated, taking a stand in the debate on the stock market but also disagrees with the recent lifting of the ban on withdrawals as it increases the risks to the banks.

In any case, Greek banks after -21% of Piraeus, -14.7% of Eurobank, -5.49% of NBG and -3.28% of Alpha Bank in yesterday's session, and with turnover exceeding 100 million, is the subject of discussion in funds, brokerage firms,

The pressures on the bank's shares in yesterday's meeting brought Piraeus Bank in the spotlight as its share suffered the biggest losses. Experts in the market attribute responsibilities even to the SSM and consider that it was a supervisory error to ask Piraeus for reinforcement throuh TIER II funds in such a difficult and difficult period. The same sources believe it was a matter of time for the Bank's efforts to find 500 million TIER II by issuing bonds and damage the credibility of the system. The news that Piraeus Bank is waiting for a window of opportunity to proceed with the issue has served as a confirmation of the rumors and virtually sparked the wave of sales, which was also reinforced by automated sales because they broke stop loss, and guarantee margins were violated,

Sources of Piraeus said that the inconvenience caused by the stock has no basis and attributed the cause to a speculative game. The same sources reported that the business plan is moving on the basis of timetables that have been set without any discrepancies in the critical sectors and adding that there is no liquidity problem. They also added that, of course, funds will be sought but this is something the bank had announced after the latest stress tests 5 months ago.

At a time when it is publicly debated whether the reform agenda to which the Government is committed will be implemented, while election tones rise with interest rates on the bond market and the shadow of the Italian crisis falling heavily on the EU, the debate on bank capital does not help at all. Especially when disbelief towards Greece is growing due to the scandal of Folli Follie and the debate that began a few days ago about the erroneous results in last year's PPC (DEH) balance sheet. Additionally, to this was added revenue fatigue revealed by the results of the semester, as well as concerns about the impact on capital adequacy from the requirements for a rapid reduction of red loans. All of this increased the doubts of funds and brought on the wave of sales.

The next day scenarios that are being discussed in major foreign investment banks and concern Piraeus Bank, over which market concerns have focused, are three: According to the first scenario, the Bank does not need regulatory capital, as the stress test were finished only five months ago. The Tier I capital ratio is at 16% and the bank will wait for the pressures on the stock to diminish, and at the right time will draw on the TIER II funds requested by the overseer. Depending on the bank's financial performance in 2018, the issue will be re-examined in the first half of the year.

According to the second scenario, because bail in deposits is beyond any discussion, if the pressures continue and intensify, CoCos of the 2 billion in favor of the state Treasury held by the Bank can be converted into shares. The bank is exempt from interest (180 million per annum), about 60% of the share capital goes to the State and additional state aid will be granted by issuing new CoCos.

It is noted that existing CoCos are converted into shares if: A) two vouchers are not paid, b) if they are not paid in 2022, C) under a new recapitalization with state aid requested by DGComp.

The third scenario provides for an increase in capital from private funds and, to the extent that it is not covered, then for th government to cover the increase, without a bail along the model of the Italian banks and the Cooperative Bank of Cyprus.