Greek Banks Pressured to Merge as Economy Hurts Profits
National Bank of Greece Headquarters
Kostas Tsironis/Bloomberg
Greece’s largest lender National Bank, seen here, has gained 16 percent since the end of June amid merger speculation and after passing the EU stress test.
Greece’s largest lender National Bank, seen here, has gained 16 percent since the end of June amid merger speculation and after passing the EU stress test. Photographer: Kostas Tsironis/Bloomberg
George Papaconstantinou, Greece's finance minister
Hannelore Foerster/Bloomberg
George Papaconstantinou, Greece's finance minister.
George Papaconstantinou, Greece's finance minister. Photographer: Hannelore Foerster/Bloomberg
EFG Eurobank fell 1.3 percent
Kostas Tsironis/Bloomberg
A pedestrian walks past an EFG Eurobank Ergasias SA advertisement which hangs outside a branch in Athens.
A pedestrian walks past an EFG Eurobank Ergasias SA advertisement which hangs outside a branch in Athens. Photographer: Kostas Tsironis/Bloomberg
Greek Banks Under Pressure to Merge as Profits Slump
Kostas Tsironis/Bloomberg
Merger speculation has increased after Piraeus, seen here, offered last month to buy the state’s holdings in Agricultural Bank of Greece, the only one of the country’s banks to fail the European Union’s stress tests, and Hellenic Postbank SA.
Merger speculation has increased after Piraeus, seen here, offered last month to buy the state’s holdings in Agricultural Bank of Greece, the only one of the country’s banks to fail the European Union’s stress tests, and Hellenic Postbank SA. Photographer: Kostas Tsironis/Bloomberg
Greek banks are under growing political pressure to merge as second-quarter earnings probably slumped on rising loan losses and worsening asset quality in the debt-burdened country.
National Bank of Greece SA, EFG Eurobank Ergasias SA, Alpha Bank SA and Piraeus Bank SA, which will report results within the next week, have been called upon to consider partnerships by Greek Finance Minister George Papaconstantinou and Bank of Greece Governor George Provopoulos. Profits at the lenders probably fell more than 60 percent in the period, according to analysts’ estimates.
Merger speculation has increased after Piraeus offered last month to buy the state’s holdings in Agricultural Bank of Greece SA, the only one of the country’s banks to fail the European Union’s stress tests, and Hellenic Postbank SA. Mergers may help banks cut costs, strengthen balance sheets and provide better access to capital markets and funding opportunities after they probably posted an increase in loan losses and non-performing loans as well as deposit outflows.
While consolidation “does not solve the liquidity, bad debt and sovereign problems of Greek banks,” it may help reduce competition for deposits and drive cost savings, said Pawel Uszko, an analyst at Macquarie Research in London. “So consolidation would be, on balance, beneficial.”
Budget Deficit
Foreign banks are unlikely to buy Greek banks at the moment because of the “uncertain sovereign backdrop and earnings pressures,” Uszko said. “Mergers between big players are more likely, but only to the extent the price is right.”
National Bank, Greece’s largest lender, dropped 1.9 percent to close at 10.10 euros as of 5:04 p.m. in Athens, while EFG Eurobank slid 5.5 percent to 5.02 euros. Alpha and Piraeus tumbled 6 percent to 5.22 euros and 5.9 percent to 4.13 euros, respectively, leading a retreat in European bank stocks today.
Greece’s government aims to reduce the budget deficit from 13.6 percent of gross domestic product last year, the second- largest gap in the EU after Ireland, to within the EU limit of 3 percent in 2014. The economic crisis has led to soaring funding costs for Greece and a slump in the value of government debt, some of which is held by the country’s banks.
National Bank will probably say second-quarter net income fell 72 percent to 109.7 million euros from a year earlier, according to the average estimate of nine analysts surveyed by Bloomberg. EFG Eurobank’s profit may have declined 65 percent to 30.7 million euros, while Alpha’s net income probably dropped 74 percent to 33.3 million euros. Piraeus may report a 17.6 million-euro loss, compared with a 77 million-euro profit.
ECB Funding
The country’s lenders have largely been cut off from the money markets, forcing them to rely on funding from the European Central Bank at a time when deposit outflows from their domestic units have reduced their traditional funding base.
The banks’ dependence on the ECB for funding and the worsening asset quality is likely to lead to mergers and capital injections, Alexander Kyrtsis, an analyst at UBS AG in London, wrote in a report this month.
“They will help create bigger financial institutions with more robust balance sheets,” the analyst said. “The resulting entities should have better access to capital markets, deliver synergies and should ultimately be significantly better placed to compete in central and south-eastern Europe.”
Non-performing loans rose to 8.2 percent of all outstanding loans in Greece in the first quarter of 2010, from 7.7 percent at the end of last year, according to HSBC Holdings Plc.
‘Remains Under Pressure’
Pressure on net interest margins, rising loan loss provisions and domestic deposit outflows probably hurt profit at Greek banks in the second quarter, said Tania Gold, an analyst at UniCredit SpA in London, which has “sell” recommendations on the country’s four largest banks.
“We forecast the cost of risk at each bank to continue rising as Greece’s economy remains under pressure,” Gold said, citing a contraction in second-quarter GDP of 3.5 percent from the year-earlier period.
Piraeus is the first major Greek bank to report second- quarter earnings on Aug. 26, followed by National Bank the next day. Eurobank is due to release its earnings on Aug. 30, while Alpha plans to publish its quarterly figures Aug. 31.
Following are the analysts’ estimates, in millions of euros. The brokerages providing estimates included Alpha, ATE Securities, CA Cheuvreux, Euroxx Securities, Macquarie, Natixis SA, Piraeus, Proton Bank and UniCredit.
National Bank (nine analysts):
Q2 2009 Q2 2010 High Low
Reported Avg. Est.
Net Interest Income 968 1,029.8 1,045 1,009
Fee, Commission Income 175 165.3 177 161
Trading, Other Income 225 -111.4 -123 -100
Total Revenue 1,394 1,111 1,150 1,055
Operating Costs -607 -624.2 -642 -604
Loan Impairments -261 -328.4 -338 -319
Net Income 391 109.7 126 86
EFG Eurobank (seven analysts):
Q2 2009 Q2 2010 High Low
Reported Avg. Est.
Net Interest Income 590 566.1 575 560
Fee, Commission Income 102 109.3 128 104
Trading, Other Income 17 39.6 54 20
Total Revenue 751 737.8 747 727.5
Operating Costs -363 -351.9 -354 -349
Loan Impairments -287 -346.7 -356 -332
Net Income 88 30.7 44 19
Alpha (five analysts):
Q2 2009 Q2 2010 High Low
Reported Avg. Est.
Net Interest Income 442 453.3 456.8 447
Fee, Commission Income 98 82.3 85.4 80
Trading, Other Income 89 19 22 14
Total Revenue 629 555.2 560.9 548
Operating Costs -294 -295.1 -297.4 -294
Loan Impairments -169 -215.6 -220 -205
Net Income 128 33.3 39 30
Piraeus (eight analysts):
Q2 2009 Q2 2010 High Low
Reported Avg. Est.
Net Interest Income 272 290.2 298 280
Fee, Commission Income 51 48.4 51 46.8
Trading, Other Income 110 19.6 30 3
Total Revenue 433 361.6 372 341
Operating Costs -217 -216.3 -220 -212
Loan Impairments -126 -105.3 -143 -135
Net Income 77 -17.6 -24.9 -15
To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net
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