MREL is the real challenge for Greek banks
Investors had plenty of appetite for a super-high yielding additional tier one from Piraeus Bank this week. Will they still be hungry when Greek banks try and issue large volumes of senior debt for their regulatory requirements?
Make no mistake, it was impressive to see Piraeus open the Greek AT1 market.
Despite seeming impossible a few months ago, the issuer was able to find support from a broad base of 200 investors.
But you can understand why some funds felt happy to take on the risk of the CCC rated deal, given the 8.75% yield is well above anything else they are likely to see in the near future.
More doubtful, however, is how Greek banks will cope with the marathon of the minimum requirements for own funds and eligible liabilities (MREL).
The country’s lenders have to issue about €13bn of qualifying debt to close their remaining MREL shortfalls, judging by data from the Single Resolution Board.
Forbearance means they’ll have longer to get there — until the end of 2025 — and they’ll be able to use cheaper preferred senior bonds to do it.
But this is still a Herculean task for Greek banks, which have had limited presence in the market in recent years.
Assuming static balance sheets — though they are anything but — the four big banks will need to muster €3bn of MREL issuance per year between them just to comply with their absolute minimums.
Eurobank, Alpha Bank and National Bank of Greece have enjoyed subscription ratios of roughly two times for their latest deals.
But given the risky nature of the debt on offer, it cannot be taken for granted that investors will keep up their enthusiasm for adding exposure to Greek banks, especially in poorer market conditions.
Can Piraeus sell an AT1? That was a huge question.
The questions over MREL compliance could well be even bigger.