Credit Agricole SA (ACA), France’s third- largest bank, entered exclusive talks to sell Emporiki Bank to Alpha Bank SA for a token price of 1 euro ($1.29) as it tries to limit the potential costs of a Greek exit from the euro.
Credit Agricole will inject a further 550 million euros into its Greek unit, bringing the total the French bank has contributed since July to 2.85 billion euros, the French lender said in a statement today. It will also buy 150 million euros of convertible bonds issued by Alpha Bank, the company added.
The French bank is trying to sell its Greek unit as concern lingers over the country’s future in the euro area. Emporiki’s loans exceed its deposits, requiring its French parent to provide funding to the unit. As a result, Credit Agricole is the foreign bank with most to lose should Greece exit the euro.
“It’s a good deal,” said Alex Koagne, a Paris-based analyst at Natixis SA who rates Credit Agricole a buy. “The impact on Credit Agricole’s solvency is quite contained.”
Credit Agricole gained 7.4 percent to 5.77 euros in Paris trading, giving the bank a market value of about 14.4 billion euros. Alpha Bank jumped 6.6 percent to 1.77 euros in Athens.
“This transaction would contribute to the consolidation of the Greek banking sector as part of the restructuring and recovery of the country’s financial sector,” Credit Agricole said in today’s statement.
Alpha will cover that funding gap in three instalments which are guaranteed by “quality assets,” Credit Agricole said. The last payment is due by the end of 2014. The lenders expect to complete the sale by Dec. 31, subject to regulatory approvals.
Credit Agricole’s additional capital injection into Emporiki and its purchase of Alpha Bank convertible bonds will reduce the French bank’s funding support by 700 million euros, according to the statement. Credit Agricole may also transfer $1 billion of shipping assets from Emporiki to the French bank, according to a Sept. 19 presentation on its website.
Credit Agricole provided 2.3 billion euros in capital to Emporiki in July following a request from the Bank of Greece (TELL), Chief Executive Officer Jean-Paul Chifflet told journalists on Aug. 28. Following the capital injection, Credit Agricole’s equity investment in Emporiki was 2.7 billion euros with net funding of 2.3 billion euros, the bank, based in Montrouge, France, said on Aug. 28.
The French bank’s “liquidity line is going to be guaranteed by non-Greek collateral, and this will reduce risks of losses in case of a Greek exit” from the euro, said Natixis’s Koagne. Credit Agricole’s funding exposure may fall to about 800 million euros after the transfer of the Emporiki shipping assets, Koagne estimated.
The French bank, founded in 1894 as a lender to farmers, invested 2.2 billion euros in 2006 to buy a majority stake in Emporiki, the least profitable of Greece’s top five banks at the time. Since then, Emporiki has been unprofitable every year except 2007, with accumulated losses for Credit Agricole of about 5.7 billion euros at the end of June.
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