Opinion of the European Central Bank 16 November 2012 on amendments to the framework for the recapitalisation of credit institutions (CON/2012/90)
Date: 2012-11-16
Institutions: European Central Bank
Subjects: Greece, capital increase, credit institution, financial stability, issue of securities, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

16 November 2012 

on amendments to the framework for the recapitalisation of credit institutions 

(CON/2012/90) 

Introduction and legal basis 

On 23 October 2012, the European Central Bank (ECB) received a request from the Greek Ministry of 

Finance  for  an  opinion  on  a  draft  law  amending  the  legal  framework  for  the  recapitalisation  of  credit 

institutions  in  Greece  (hereinafter  the  ‘draft  law’).  On  2  November  2012,  the  ECB  received  a  revised 

version of the draft law.  

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

functioning  of  the  European  Union  and  the  third  and  sixth  indents  of  Article  2(1)  of  Council  Decision 

98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities 
regarding  draft  legislative  provisions1,  as  the  draft  law  relates  to  the  Bank  of  Greece  and  to  rules 

applicable  to  financial  institutions,  insofar  as  they  materially  influence  the  stability  of  financial 

institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of 

the European Central Bank, the Governing Council has adopted this opinion. 

1.  

Purpose of the draft law 

1.1   According  to  the  explanatory  memorandum  of  the  draft  law,  its  purpose  is  to  complete  the  legal 

framework  for  the  recapitalisation  of  credit  institutions  in  Greece  via  the  Hellenic  Financial 
Stability Fund (HFSF).  The draft law therefore amends Law No 3864/20102 establishing the HFSF 

(hereinafter  the  ‘HFSF  Law’),  mainly  by  refining  the  modalities  for  the  recapitalisation  of  credit 

institutions  by  the  HFSF;  moreover,  it  further  specifies  some  aspects  related  to  the  HFSF’s 

governance structure and introduces some editorial improvements to some provisions of the HFSF 

Law. 

1.2  More  specifically,  the  following  provisions  of  the  draft  law  may  be  noted:  (i)  Article  1(1) of  the 

draft law supplements Article 2(2) of the HFSF law to provide that, if outstanding warrants exist on 

the date of initial termination of the HFSF’s duration, its duration is automatically extended by one 

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OJ L 189, 3.7.1998, p. 42. 
FEK Α 138/9.8.2010. 

 
 
 
 
                                                 
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more  year,  and  that  by  ministerial  decision  the  HFSF’s  duration  may  be  extended  by  up  to  two 

years, if this is necessary for the fulfilment of its purpose; (ii) Article 1(6) codifies Article 4 of the 

HFSF  Law  setting  out  the  HFSF’s  governing  bodies  and  introduces  amendments  mainly  with  a 

view to aligning the term of office of members of the governance bodies with the HFSF’s duration, 
and  to  further  specifying  the  exercise  of  their  tasks3;  (iii)  Article  1(8)  sets  out  the  terms  for  the 

remuneration  of  HFSF  staff;  (iv)  Article  1(9)  provides  clarification  as  to  credit  institutions’ 

obligation  to  submit  business  plans;  (v)  Article  1(13)  amends  Article  6(10)  of  the  HFSF  Law  to 

provide that the Bank of Greece, when deciding on the recapitalisation of a credit institution, takes 

into account the need to preserve the stability of the financial system and to ensure its contribution 

to  growth  and  to  the  economy;  (vi)  Article  1(16)  supplements  Article  6  of  the  HFSF  Law 

authorising  the  Cabinet  to  specify  the  terms  of  the  pre-subscription  agreements  entered  into  by 

credit institutions, the European Financial Stability Facility and the HFSF for the purposes of the 

subscription by the HFSF to the convertible instruments to be issued by the credit institutions being 

recapitalised;  (vii)  Article  1(17)  replaces  Articles  7  and  7a  of  the  HFSF  Law  with  a  view  to 

specifying  the  process  and  modalities  for  HFSF  participation  in  credit  institutions’  share  capital 
increase through the issuance of common stock and/or contingent convertible bonds (‘CoCos’)4, as 
well  as  the  HFSF’s  voting  rights  in  relation  to  the  threshold  for  private  investor  participation5; 

(viii) Article 1(18) inserts a new Article 7b in the HFSF Law on the detailed terms for the issuance 
of warrants6 by the HFSF as a means of providing incentives for private sector participation and a 

new  Article  7c  setting  out  the  details  concerning  the  issuance  of  CoCos  by  credit  institutions; 

(ix) Article 1(26) clarifies the secrecy and confidentiality regime applicable to the members of the 

HFSF’s governance bodies and to the representatives of the ECB and the European Commission; 

(x) finally, Article 2 introduces a transitional provision stipulating that, until the appointment of the 

GC and EC members, the HFSF will be managed by the existing Board of Directors; thereafter, the 

Board of Directors will be repealed and the term of office of its members will cease, without any 

payment.  

3  

4  

5  

6  

It amends, inter alia, Article 4(5) of the HFSF Law to provide that the members of the HFSF’s General Council (GC) and 
Executive Committee (EC) will be appointed for a term of office equal to the HFSF’s duration (until 30 June 2017), with 
the  possibility  of  renewal  thereof  for  a  period  equal  to  the  extension  of  the  HFSF’s  duration  under  Article  2(2)  of  the 
HFSF Law. With regard to the HFSF dual governance structure, see also paragraph 3.1 of Opinion CON/2012/14. All 
ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
Article 1(17) of the draft law repeals the delegation to the Cabinet currently included in Article 7 of the HFSF Law to 
regulate any details arising from the provision of capital support by the HFSF under Article 7; instead, such details are 
now directly provided for in the draft law.  
Moreover, it is specified that both the HFSF and other shareholders of the recapitalised credit institutions are subject to 
additional information requirements deriving from their relevant shareholding and voting rights in accordance with Law 
No 3556/2007 on transparency requirements for companies with stock listed in a regulated market (FEK Α΄ 91), which 
implements  Directive  2004/109/EC  of  the  European  Parliament  and  of  the  Council  of  15  December  2004  on  the 
harmonisation  of  transparency  requirements  in  relation  to  information  about  issuers  whose  securities  are  admitted  to 
trading on a regulated market and amending Directive 2001/34/EC (OJ L 390, 31.12.2004, p. 38). 
The use of warrants is already provided for in Article 7 of the HFSF Law, as currently in force. While newly-inserted 
Article 7b(11) introduces a delegation clause to the competent Minister to specify any necessary details relating to the 
implementation  of  Article  7,  the  Greek  legislator,  according  to  the  explanatory  memorandum,  has  opted  to  regulate 
several modalities relating to the issuance, conversion and exercise of warrants directly in the draft law.  

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2. 

General observations 

The  ECB  welcomes  the  draft  law,  which  aims  at  complementing  the  Greek  legal  framework  for  the 

recapitalisation  of  credit  institutions,  established  in line  with  the  financial  sector  objectives  outlined  by 
the  Greek  authorities  in  the  Memorandum  of  Economic  and  Financial  Policies7.  In  relation  to  the 

development  of  such  a  national  legal  framework,  the  ECB  would  like  to  refer  to  its  previous  relevant 
opinions8. The ECB continues to attach the utmost importance to the completion of the recapitalisation of 

credit  institutions  in  Greece  and  considers  that  the  draft  law  should  allow  for  a  timely  and  efficient 

recapitalisation, with the participation of private investors. Without prejudice to this general observation, 

the ECB has the following specific observations. 

3. 

Duration of the HFSF 

Article  1(1)  of  the  draft  law  provides  that,  if  warrants  exist,  the  HFSF’s  duration  will  be  automatically 

extended by one more year, i.e. until 30 June 2018, and that by ministerial decision the HFSF’s duration 

may be extended by up to two years, if this is necessary for the fulfilment of its purpose. Furthermore, 

Article  8(1)  of  the  HFSF  law,  as  amended  by  Article  1(19)  of  the  draft  law,  authorises  the  Minister  to 

extend all time limits provided for therein with regard to the sale of shares owned by the HFSF. The ECB 
has  consistently  underlined  the  need  for  any  national  support  scheme  to  be  temporary  in  nature9.  The 

current Greek formulation in the draft law suggests that the Minister may issue decisions extending the 

HFSF’s duration more than once. The ECB notes that the draft law should not leave any ambiguity as to 

the finite duration of the HFSF. 

4.   Objectives taken into account by the Bank of Greece in the recapitalisation process 

The  draft  law10  requires  the  HFSF’s  advanced  contribution  to  a  capital  increase  to  be  necessary  to 

preserve  financial  stability  and  to  ensure  contribution  to  growth  and  the  real  economy.  The  ECB  notes 

that such contribution is only envisaged for credit institutions which have already been assessed as viable 

by  the  Bank  of  Greece.  Therefore,  the  ECB  understands  that  this  criterion  will  in  no  event  affect  the 

viability  assessment  by  the  Bank  of  Greece.  It  also  understands  that  it  will  also  not  compromise  the 

resolution objectives and other restructuring measures, notably that non-viable banks should be resolved. 

In this respect attention needs to be drawn to the proposal for a directive of the European Parliament and 

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8  
9  
10  

Annex  V  to  Law  No  4046/2012  on  the  approval  of  the  draft  financing  agreements  between  the  European  Financial 
Stability Fund, the Hellenic Republic and the Bank of Greece and of the draft Memorandum of Understanding between 
the Hellenic Republic, the European Commission and the Bank of Greece and other provisions of utmost importance for 
reducing the public debt and saving the national economy (FEK A 28/14.12.2012). 
See in particular Opinions CON/2010/54, CON/2011/72, CON/2012/014, CON/2012/25 and CON/2012/39.  
See, e.g. Opinion CON/2010/54, paragraph 2.2. 
Article 1(13) of the draft law. 

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of  the  Council  establishing  a  framework  for  the  recovery  and  resolution  of  credit  institutions11,  which 

should serve as a benchmark.   

5. 

Pricing of recapitalisation instruments 

5.1  Article 1(17) of the draft law provides for the subscription of common stock by the HFSF under 

specific  conditions  and  sets  out  in  detail  the  modalities  for  determining  the  issue  price  for  such 

common stock.  Article 1(18) lays down the terms of issuance of warrants by the HFSF. The price 

for the exercise of each  warrant will be equal to the  issue price for each  common stock, with an 

interest  rate  of  3%  plus  a  spread  increasing  by  100  bps  on  an  annual  basis;  this  is  expected  to 

motivate  private  investors  to  exercise  their  rights  as  soon  as  possible.  Moreover,  Article  1(18) 

stipulates that CoCos bear an annual interest rate of 7%, increased by 50 bps per annum, payable in 
cash  on  an  annual  basis,  provided  that  capital  adequacy  and  profitability  requirements  are  met12. 

Their conversion rate will be equal to 50% of the offer price of the common stock subscribed for by 

the HFSF. 

5.2  The ECB welcomes the pricing under the draft law, which ensures market-oriented remuneration 
rates, appropriate behavioural safeguards and regular review mechanisms13, and is broadly in line 

with the methodology laid down by the ECB for benchmarking the pricing of State recapitalisation 
measures14. It has repeatedly stressed the importance of appropriate pricing for recapitalisations to 

enhance  the  stability  of  the  financial  system,  facilitate  a  return  to  normal  market  conditions  and 
ensure a level playing field and the proper financing of the economy15. More specifically, the ECB 

welcomes the remuneration of the capital injection on the basis of the issue price and the sufficient 

discount  ensured  both  by  the  exercise  of  warrants  and  by  the  CoCos  conversion  mechanisms. 

Moreover,  it  welcomes  the  quoted  market  price  being  the  benchmark  price  and  the  alternative 

coupon  satisfaction  mechanism  contained  in  the  CoCos  and  underscores  the  importance  of  its 

inclusion  in  order  to  ensure  a  market-oriented  remuneration  rate.  The  ECB  considers  that  the 

proposed pricing framework contains appropriate incentives to encourage Greek credit institutions 

to exit State support as soon as possible. 

11  
12  

13  

14  
15  

COM(2012) 280/3. 
If  payment  of  interest  cannot  be  effected,  it  is  substituted  by  a  payment  in  kind  through  the  issuance  of  new  common 
shares by the credit institution, at a price equal to the greater of (i) the volume-weighted average price of the share over 
the 50 trading days preceding interest payment date; or (ii) the nominal share value. The credit institution may decide to 
cancel any interest payment but then CoCos are immediately converted into common stock at a discount of 75% while 
their normal conversion price at the end of the fifth year from the issuance (mandatory conversion) is 50% of the issue 
price of the common stock initially subscribed by the HFSF. 
On these principles see Commission Communications 2009/C 10/03 (OJ C 10, 15.1.2009, p.2), point I.3, 2009/C 195/04 
(OJ C 195, 19.8.2009, p. 9) and 2011/C 356/02 (OJ C 356, 6.12.2011, p. 7). 
See the ECB Governing Council Recommendations of 20 November 2008. 
See, e.g., Opinion CON/2010/54, paragraph 2.6. 

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6. 

Timely completion of corporate proceedings for the recapitalisation  

6.1  According to the new Article 7(7) of the HFSF Law, as inserted by Article 1(17) of the draft law, 

the time limit for the convocation of a general meeting of shareholders and any adjourned meetings 

thereof  for  the  purposes  of  deciding  on  the  issuance  of  CoCos,  as  well  as  for  the  submission  of 

documentation  to  the  supervisory  authorities,  will  be  shortened  to  one-third  of  the  time  limits 
provided for in Greek company law16. In this respect, the ECB stresses the importance of the timely 

completion  of  the  issuance  of  common  stock  which  is  also  of  essence  to  ensure  the  prompt 

finalisation  of  the  recapitalisation  process.  The  ECB  thus  invites  the  consulting  authority  to 

consider this element, having regard to both the Greek corporate law framework and to the relevant 
Union legislation17.  

6.2  Consistently  with  the  above  observation,  the  ECB  considers  that,  without  prejudice  to  the  Greek 

legislator’s prerogative to choose the statutory channel to address technical or other special issues 

that  may  arise  from  the  capital  increase  through  the  issuance  of  common  stock,  including  a 

delegation  clause  in  Article  7  of  the  HFSF  Law  would  provide  the  necessary  flexibility  to  allow 

such issues to be addressed promptly, given that the timing element is important for the successful 

recapitalisation of credit institutions. Furthermore, the inclusion of such a clause in Article 7 would 

be in line with similar clauses in Articles 6, 7b and 7c of the HFSF Law, as amended or inserted by 

the draft law.  

7. 

Voting rights of the HFSF 

Article 7a(1) of the HFSF Law, as amended by Article 1(17) of the draft law, provides that where private 

sector participation in the capital increase referred to in Article 7(3) of the HFSF Law is at least equal to 

10% of the amount of the share capital increase, the HFSF will exercise its voting rights in the general 

meeting of shareholders only for decisions regarding charter modifications, including capital increase or 

reduction or providing proxy powers to the Board of Directors to that effect, merger, division, conversion, 

revival, extension of duration or dissolution of the company, material asset transfers, including sales of 

subsidiaries but excluding current transactions, or any other matters requiring an increased majority under 

Law No 2190/1920. The ECB notes that the concept of ‘current transactions’, which are excluded, is not 

defined in the draft law and could create ambiguities in relation to the scope of the HFSF’s voting rights. 

The ECB is of the view that the law should clearly stipulate that the HFSF is always able to exercise its 

voting  rights,  in  relation  to  decisions  regarding  charter  amendments  or  any  other  issue  that  requires  an 

increased majority at the general meeting pursuant to Greek corporate law. 

16  
17  

Law No 2190/1920 on limited liability companies. 
Notably Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain 
rights of shareholders in listed companies (OJ L 184, 14.7.2007, p. 17). 

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8. 

ECB representative 

Finally,  the  ECB  welcomes  the  amendment  to  Article  16B(9)  of  the  HFSF  Law,  as  inserted  by 

Article 1(26) of the draft law, whereby it is clarified that the HFSF confidentiality regime does not apply 

vis-à-vis the ECB. In the exercise of their mandate as observer in the HFSF, the ECB representative acts 

as an ECB staff member and is solely subject to the ECB’s confidentiality regime. The very reason for the 

ECB representative’s mandate is to share with the ECB any information obtained from the HFSF and, in 

so doing, the ECB representative is bound by the ECB’s strict confidentiality regime.  

Regarding the ECB representative’s mandate within the HFSF more generally, the ECB reiterates that this 

mandate  has  always  been  limited  to  observer  status  and  therefore  does  not  have  an  impact  on  decision 

making, which currently is the sole responsibility of the members of the current Board of Directors and 

will  be  the  sole  responsibility  of  the  members  of  the  EC  and  the  GC,  as  soon  as  such  bodies  are 

constituted.  Therefore,  the  ECB  welcomes  that  Article  4(15)  of  the  HFSF  Law  clarifies  that  the  ECB 

representative’s mandate is only to observe, without having voting rights. However, as regards the ECB 

representative’s  right  under  the  new  governance  structure  to  request  the  future  president  to  call  for  a 

meeting of the GC, the ECB considers that this goes beyond its observer status and thus should be deleted 

from the draft law.  

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 16 November 2012. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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