Greek banks seal mega merger with Qatar help

Reuters/Athens

Alpha Bank CEO Dimitris Mantzounis (left) gestures next to chairman Yannis Costopoulos (second left); Eurobank non-executive chairman Efthymios Christodoulou (second right) and CEO Nicholas Nanopoulos after a news conference in Athens yesterday. Qatar will own about 17% of the bank that will be created by the merger of Alpha Bank and Eurobank, the two banks said in a presentation

Greece’s Alpha and EFG Eurobank yesterday sealed a mega merger, with the help of Qatar, that is expected to trigger more deals to shore up banks battered by a severe debt crisis and recession. Alpha and Eurobank shares shot up by 30% as soon as the bourse lifted a trading suspension after their boards rubber-stamped the deal to form the largest bank in southeast Europe, aided by a capital injection from the Qatar Investment Authority. The Greek central bank chief and the finance minister welcomed the tie-up as a watershed for Greek banking, saying the participation of a strong foreign investor was a boost to the banking system and the whole economy. “This initiative shows that today’s crisis can be an opportunity for structural moves that boost both the financial sector and the real economy,” Finance Minister Evangelos Venizelos said in a statement. “Qatar’s participation sends an international message of confidence in the prospects of the Greek economy.” The deal comes as European Unions and International Monetary Fund inspectors begin a visit to examine the country’s performance against conditions set for its rescue by the international community. In Athens the banking sector index rallied 29.4% mid-day yesterday, as details of the deal emerged. European bank shares were up 0.8% with the Paris CAC 40 index gaining 1.3%.Troubled by deposit outflows, sovereign debt downgrades and rising loan impairments with the economy in its third straight year of recession, Greek banks had been urged to explore tie-ups in hopes of regaining access to wholesale funding markets. A worsening liquidity squeeze and fears that a thorough audit of their loan books by BlackRock would reveal the need for higher provisions have pummeled their shares. Investors worried that recapitalisation needs would force banks to turn to the Financial Stability Fund (FSF), a national capital support safety net. Such action would significantly dilute current shareholder ownership, placing banks in state hands. “The biggest incentive for the two banks to merge is to avoid nationalisation,” said a bank analyst who did not want to be named. “It will be the starting signal for M&A in Greece. The other banks will have to react, particularly Piraeus which is the smallest of the four big Greek banks.” The Alpha-Eurobank deal will topple National Bank (NBG) from its current top position in Greek banking. NBG had unsuccessfully courted Alpha earlier in the year. Piraeus Bank yesterday welcomed the deal but said it was currently not in merger talks with any other bank. Alpha and Eurobank are to merge via an all-share swap with a €1.25bn rights issue set to follow along with a €500mn convertible bond to be covered by Qatar. The share swap ratio will be 7 Eurobank shares for every 5 Alpha Bank shares, the banks said. “The markets were worried that all was going to hell. This will show them that something is happening in this country,” Alpha Bank’s chairman Yannis Costopoulos, who will chair the new entity’s board, told a news conference. The combined group projects annual synergies of €650mn. Executives said the new bank, named Alpha Eurobank, would not pull out of southeast Europe and the overall capital plan would ensure core Tier 1 ratio of 14%. The management team will be led by two CEO’s, Alpha’s Dimitris Mantzounis and Eurobank’s Nicholas Nanopoulous.Alpha takes huge hit on bond holdingsGreece’s Alpha Bank, fresh from announcing a merger with Eurobank, said yesterday it slumped to a first-half loss of nearly €525mn after taking huge charge to cover its Greek bond exposure. The bank, one of the debt-stricken country’s top lenders, said it suffered a six months to June net loss of €524.8mn ($755mn) after taking a charge of €538.6mn euros against its holdings of Greek government bonds. The charge was calculated using a 21% loss adjustment which was written into July’s second Athens debt bailout which included private sector creditors agreeing to rollover their Greek government bond holdings. Without the charge, it had a net profit of €14mn, down nearly 64% from first half 2010. Despite the loss, Alpha Bank said it had a strong capital position, with Core Tier I at 10%, well above the new international Basel III requirement of 7.0%. Alpha Bank, unlike its merger partner Eurobank, passed a European bank stress test earlier this year but said it has sourced €16.9bn in liquidity from the European Central Bank. Its non-performing loan ratio was 10.3%. “The agreement reached on July 21 at the EU summit ... illustrates the commitment of our European partners to support our country’s reform efforts,” Alpha Bank chairman Yannis Costopoulos said in a statement. Separately, Eurobank announced a heavy first-half loss of €588mn, caused similarly by provisions on its holdings of Greek government bonds. If the bond charge was excluded, however, Eurobank said it would have had a net profit of €76mn, up nearly 53%.