Eurobank, Alpha Plan Merger Amid Debt Crisis

By Christos Ziotis and Maria Petrakis - Aug 29, 2011 11:07 AM GMT+0300

The boards of EFG Eurobank Ergasias SA and Alpha Bank SA,Greece’s second- and third-biggest banks, met today to discuss a possible merger aimed at bolstering their assets and helping them ride out a deepening recession and the country’s sovereign debt crisis.

Shares in the Athens-based companies were suspended today pending news from the board meetings, the Athens exchange said in astatement posted on its website. The banks are meeting on “their merger and a planned capital boost of the new bank,” the exchange said. A joint press conference will be held at 2 p.m. today in Athens, the two banks said yesterday.

The alliance between the two lenders would create Greece’s biggest bank, with assets of 150 billion euros ($217 billion), more than 2,000 branches and about 80 billion euros in deposits. Qatar investors, who already have a stake in Alpha, will participate in the new entity, according to one of the people.

“A merger between any of the major Greek banks and a concurrent capital injection would be welcomed by the market, regulators and policy makers,” said Alexander Kyrtsis, a senior banking analyst at UBS AG in London. “Capital is scarce and a deal could enable the banks to access the market and private investors.”

National Bank of Greece SA (ETE), the country’s biggest bank, jumped as much as 26 percent at the start of trading on the Athens exchange today. Piraeus Bank SA surged as much as 29 percent.

European Union and Greek officials, including central bank chiefGeorge Provopoulos, have pressed the country’s lenders to form stronger groups that can survive a crisis that has depleted capital as bond prices slump, loan-losses mount and banks lose deposits. Lenders have been left reliant on funding from the European Central Bank. Combining banks may lead to stronger balance sheets, cost savings and better access to capital.

Bank Shares

Share prices in Greece’s lenders plummeted last week as the country grappled with a third year of recession and the government pursued negotiations on a second bailout package, which will entail losses for bondholders. Alpha’s shares fell 26 percent to 1.9 euros and Eurobank declined 22 percent to 1.73 euros.

Alpha Bank and Eurobank ended the week with a combined market value of barely 2 billion euros, according to Bloomberg data, down from about 23 billion euros at the end of 2007 as the global financial crisis and Greece’s debt woes eroded value.

No details were available on financial terms of the deal. The chairman of the new entity will be Yannis Costopoulos, the present chairman of Alpha Bank, one person with knowledge of the matter said on Aug. 27.

State-run NET Radio reported Eurobank will offer seven shares for five Alpha shares, without saying how it got the information.

Lower Deposits

The country’s recession and struggle to avert default led deposits by businesses and households to fall for a sixth straight month in June, the Athens-based Bank of Greece (TELL)said on Aug. 9. Deposits have declined by 21.4 billion euros since December 2010, or 10 percent, with the withdrawals forcing Greek banks to borrow more from the central bank as money markets remain shut.

They owed the ECB 103.3 billion euros in June, up from 97.5 billion euros in May, according to Greek central bank figures released on July 25.

The Organization for Economic Cooperation and Development said in a report Aug. 2 that Greek banks should look at mergers with foreign lenders to help them gain market funding and shouldn’t rush to reduce reliance on the European Central Bank.

“Further bank consolidation could be one option to increase access to market liquidity,” the Paris-based OECD said. “Managers and shareholders should, however, explore the option of partnerships or mergers with foreign banks.” It said the financial system will remain hobbled until public finances are strengthened and risks related to the economy decrease.

Shrinking Economy

The OECD sees Greece’s economy contracting 3.5 percent this year and growing 0.6 percent in 2012. The European Commission estimates Greece’s debt will peak at 161 percent of gross domestic product in 2012.

The two banks, and National Bank, are due to report earnings for the second quarter this week, with Eurobank set to announce results today.

The effect of a government bond swap, part of a 159 billion-euro EU financing package agreed to on July 21, may mean writedowns of about 4 billion euros in the second quarter for Greek banks, UBS’s Kyrtsis said in an Aug. 26 report. That, combined with bond buybacks and a review commissioned by the central bank of loan portfolios “may lead to recapitalizations of up to 6 billion euros, further asset disposals and mergers and acquisitions in following months,” he wrote.

Eurobank, with 8.7 billion euros of Greek bonds, was one of two Greek lenders which failed European stress tests last month, with a Tier 1 capital ratio, a measure of financial strength, of 4.9 percent under adverse conditions, below a 5 percent minimum.

Qatari Stake

The founding Costopoulos family is the largest shareholder in Alpha, with Paramount Services Holding Ltd., which represents one of the most prominent families in Qatar, the next biggest, with a 3.1 percent stake, Bloomberg data show. Alpha sold a 4 percent stake to Paramount in June 2008 for 296 million euros.

The transaction would be the second attempt this year involving Alpha. The lender spurned an unsolicited offer by National Bank in February, citing the “uncertainties of the current environment,” according to a statement at the time. National Bank holds 18.8 billion euros of Greek bonds, the largest among the four biggest banks, while Alpha holds 5.5 billion euros.

National Bank, whose shares have declined 54 percent this year, is planning to increase its Core Tier 1 capital to more than 13 percent from its current 12 percent by selling a stake in its Turkish unit Finansbank AS, Chief Executive Officer Apostolos Tamvakakis told shareholders at its annual meeting June 23.

The sale of a 20 percent stake in the unit will proceed when conditions are “appropriate,” he said.

To contact the reporter on this story: Maria Petrakis at mpetrakis@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net