Boston, MA 04/16/2014 (wallstreetpr) – Shares of National Bank of Greece (ADR) (NYSE:NBG) continued their downfall through Tuesday as the bank prepares to tap into the capital market to plug its capital deficit. The planned equity offering, however, comes as a surprise given that the bank had initially stated that it would not dilute its shares to address the financial shortfall it faces. Instead, the bank was expected to resort to sale of non-core assets and internal improvement, which meant more aggressive cost cuts.
The company is falling financial deficit of about 2.18 billion euro or $3.03 billion.
Avoiding debt
The bank needs to raise money urgently. Although equity issuance will result in value dilution for the existing shareholders, it is better than debt borrowing. Raising capital through debt will result in interest expenses that might delay the bank’s recovery. However, by opting for issuance of additional shares, the bank will not only avoid unnecessary financial burden in terms of interest on the debt, but also achieve financial stability quickly.
For that reason, the move to sell additional shares is in the right direction even though it might not be the most desirable thing to have happened to shareholders at this point. In any case, peers of National Bank of Greece (ADR) (NYSE:NBG) such as Eurobank, Alpha Bank and Piraeus Bank have also turned to the capital market to raise additional capital as the option is deemed less risky compared with debt offering.
National Bank of Greece (ADR) (NYSE:NBG) tapped Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) as its global coordinators in the planned equity offering. The move by the bank to turn to the equity offering was prompted by a rejection of its proposal by the country’s central bank to plug its capital deficit through other means namely disposal of assets and more costs and expenses controls.
Return to profitability
National Bank of Greece (ADR) (NYSE:NBG) can be seen improving its performance. The bank, last year, returned a profit of 809 million euros, suggesting a significant improvement from a loss of 2.1 billion euro in 2013.
