Wilbur Ross is taking the mickey with his idea about how to recapitalise Greek banks. The billionaire US investor, who owns shares in Eurobank, wants the euro zone to provide up to euro 23 billion in contingent capital so he and other shareholders aren't diluted.
Greece's banks need capital, but its economic prospects are so uncertain that it is impossible to nail down how much. So it makes sense to inject only a portion of the equity that might be needed in a worst-case scenario now and keep the rest in reserve if and when it is needed.
In an ideal world, this could be done without wiping private shareholders out. The problem is Ross' specific proposal for achieving this looks greedy. He thinks private shareholders, who currently own about 40 per cent of the banks, should put in only about euro 1 billion. That would imply total ordinary share offerings of euro 2.5 billion.
Although it is uncertain how much capital the banks need, a reasonable range is around euro 7 billion to 25 billion. If Ross wants to be taken seriously, he needs to come in at least at the bottom of this range, meaning the private sector would provide euro 3 billion.
Meanwhile, Ross' idea of what the banks should pay the euro zone as a commitment fee in return for standing ready to provide capital if the Greek economy goes down the plughole is pie in the sky. He thinks less than an annual two per cent of the contingent capital committed would be commercially reasonable, but around five per cent might be more appropriate.
Ross also thinks the European Central Bank (ECB), which supervises the banks, should only be able to call on the contingent capital if a bank's capital ratio falls below certain formulaic levels in the next two years. It is hard to see the ECB, which has been keeping the banks afloat by authorising vast amounts of emergency liquidity, going along with an arrangement under which the lenders might end up under-capitalised after the euro zone's commitment expires.
Ross makes clear that his numbers are illustrative. For his scheme to fly, he will need to rerun them.
