Greece's central bank said on Monday it activated a bank rescue fund to save Proton Bank, effectively nationalizing the small lender that is under investigation for possible violation of the country's money-laundering laws.
It is the first lender to be nationalized under the Financial Stability Fund (FSF), a safety net set up by Greece and its international lenders for banks that need to recapitalize but cannot raise funds in the market.
Analysts said the move had to do with Proton's own business problems and not with the country's severe debt crisis.
After recommendation by the Bank of Greece, the Finance Ministry proceeded to apply to Proton Bank a new law about the restoration of banks, the Bank of Greece said in a statement.
The Bank of Greece said Proton was split into a good bank where all of its private sector, government deposits and sound assets were transferred. The good bank will have the FSF backstop as its sole shareholder and retain the trade name Proton.
The 'good bank' is well capitalized, with a capital adequacy ratio that is well above the regulatory threshold. It has access to euro-system liquidity through the Bank of Greece, the central bank said.
According to the finance ministry, the new Proton Bank has a capital adequacy ratio of 10.6 percent. The Bank of Greece has told the country's lenders they will have to maintain a Core Tier 1 ratio of 10 percent from January 2012.
Proton, with a network of 31 branches and a current market value of about 11 million euros, had total assets of 3.8 billion at the end of the first quarter.
The central bank said the license of the old Proton Bank was withdrawn and it was put into liquidation. The proceeds of the liquidation will be used to cover the claims of third parties. Proton shareholders will rank as last claimants.
The new bank, free of the deficiencies of the previous bank, is financially sound and will continue normally its operations, the Bank of Greece said.
CENTRAL BANK PROBE
Proton's woes erupted this summer after it disclosed it was being probed by the central bank on money laundering violations related to transactions by its main shareholder.
The activation of the Financial Stability Fund for Proton Bank has nothing to do with its exposure to Greek sovereign bonds but it has to do with its bad loans' portfolio, said a Greek-based bank analyst who declined to be named.
A senior banker who requested anonymity also said Proton's woes were the result of its own business issues and was not a result of the debt crisis.
Shares in Proton will be suspended from trade, a senior bourse official said.
Proton's major shareholder was businessman Lavrentis Lavrentiadis, who reduced his stake from a little over 20 percent to about 15 percent in March.
Greek banks, troubled with rising provisions for impaired loans, shut out of wholesale funding markets and hurt by their Greek government bond holdings, have also seen their deposits drop sharply since the start of the country's debt crisis.
Greece's FSF already has 10 billion euros to recapitalize the Greek banking system.
That amount should grow to 30 billion once euro zone parliaments ratify the EU's EFSF safety net created to prevent the Greek crisis from spilling over into other countries like Spain or Italy and triggering a new global economic downturn.
(Additional reporting by Angeliki Koutantou; Editing by Ingrid Melander)