Credit Agricole SA, France’s third-largest bank, is exiting Greece by agreeing to sell Emporiki Bank to Alpha Bank SA on terms that will cut net income by about 2 billion euros ($2.6 billion) in the third quarter.
Credit Agricole is selling the unit for a token price of 1 euro, the company, based outside Paris, said today. It will inject more funds into Emporiki, bringing the total capital boost since July to 2.85 billion euros, and buy 150 million euros of convertible bonds issued by Alpha Bank.
Credit Agricole is ending a six-year investment in Europe’s most indebted country as concern lingers over Greece’s future in the euro area. Credit Agricole’s funding for the unit makes it the foreign lender with the most to lose should Greece leave the single currency. The boards of both companies and the Hellenic Financial Stability Fund have approved the sale, which the banks aim to complete by year-end, Credit Agricole said.
“Greek talks with its creditors could still put a spanner in the works and the outstanding funding line means that the bank has downside risk should there be a Greek exit,” said Benjie Creelan-Sandford, an analyst at Macquarie Bank in London who rates Credit Agricole underperform. “Away from Greece, Credit Agricole still faces peripheral sovereign bond exposure.”
Credit Agricole fell 2.5 percent to 6.24 euros by 2:19 p.m. in Paris, giving it a market value of 15.6 billion euros. Credit Agricole’s shares have gained about 16 percent since the lenders entered exclusive talks on Emporiki on Oct. 1. Alpha shares rose as much as 2.5 percent to 2.09 euros in Athens.
The combination between Alpha Bank and Emporiki will create Greece’s second-largest bank by loans. Greece, heading for a sixth year of recession, is overhauling its banking system after lenders booked losses on government-bond holdings in the biggest sovereign-debt restructuring in history. The country obtained a 130 billion-euro bailout in March from the European Union and the International Monetary Fund that earmarked 50 billion euros for recapitalizing the banks.
Greek banks must complete their recapitalization by the end of April by selling shares and contingent convertible bonds, Imerisia reported Oct. 15, citing a draft agreement between the government and the European Commission, the IMF and the European Central Bank, known as the troika. A deal with the troika is needed to unlock a 31 billion-euro aid installment that the Greek government needs to recapitalize its banks and pay debts.
Emporiki’s sale still faces “execution risks” as it will need approvals from regulators, Credit Agricole’s Chief Financial Officer Bernard Delpit told analysts on a call today. Delpit also said he is “pretty optimistic” that Emporiki will face no impact on deposits during the sale to Alpha Bank.
National Bank of Greece SA, the nation’s biggest lender, on Oct. 5 offered to buy Eurobank Ergasias SA in a bid to retain its market dominance as Greece’s debt crisis forces a wave of mergers. Societe Generale SA, France’s second-largest bank, is in exclusive talks to sell its Athens-based unit Geniki Bank to Piraeus Bank SA.
Credit Agricole’s net funding to Emporiki was 2.1 billion euros at the end of September, and the latest capital injection and purchase of convertible bonds will “immediately” lower that by 700 million euros, the bank said.
Alpha Bank will cover the remaining funding gap in three installments, with the last payment due by the end of 2014. Credit Agricole may also buy assets of Alpha and Emporiki to reduce that funding shortfall.
Credit Agricole already provided about 2.3 billion euros in capital to Emporiki in July following a request from the Bank of Greece.
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 through the end of June.
Alpha Bank will add 17.4 billion euros of Emporiki loans as part of the deal, and the combined entity will have about 61 billion euros of loans and 737 branches, according to an Alpha Bank presentation. The combined bank had pro-forma capital of 4.1 billion euros as of March, Alpha Bank said.
“Alpha Bank acquires a lender with excess capital,” Maria Kanellopoulou, an Athens-based analyst at Euroxx Securities, wrote in a note to clients today. “The combined group will have a competitive capital advantage.”