EFG Eurobank Ergasias SA (EUROB) and Alpha Bank SA, Greece’s second and third-biggest banks, plan to merge in a bid to bolster their assets and ride out a deepening recession and the country’s sovereign debt crisis.
Both boards will meet tomorrow to approve the terms of the friendly deal, one person with knowledge of the matter said yesterday, declining to be named because talks are confidential. The meetings were confirmed by another person, who also declined to be named. A joint press conference will be held at 2 p.m. tomorrow in Athens, the two banks said, without disclosing any details of the subject.
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 policymakers,” 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.”
European Union and Greek officials, including central bank chief George 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.
Eurobank Deputy Chief Executive Nikolaos Karamouzis and George Aronis, a general manager at Alpha and member of the board, declined to comment on the merger report.
Share prices in Greece’s lenders plummeted last week as the country grappled with a third year of recession and the government was negotiating a second bailout package that 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.
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 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 two banks, and National Bank of Greece SA (ETE), the nation’s largest, are due to report earnings for the second quarter this week, with Eurobank set to announce results tomorrow.
The effect of a government bond swap, part of a 159 billion-euro EU financing package agreed on July 21, may mean losses 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 recapitalisations 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 an adverse scenario, missing the 5 percent minimum.
No details were available on financial terms of the deal. Chairman of the new entity will be Yannis Costopoulos, the present chairman of Alpha Bank, one person said.
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 shows. Alpha sold a 4 percent stake to Paramount in June 2008 for 296 million euros.
The transaction will be the second attempt this year involving Alpha. Alpha spurned an unsolicited offer by National in February, citing the “uncertainties of the current environment,” according to a statement at the time. National holds 18.8 billion euros of Greek bonds, the largest among the four biggest banks, while Alpha holds 5.5 billion euros.
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