Generally a poor outlook for the chances of a merger between National Bank of Greece and Alpha Bank on Monday, for quite a few reasons: an awkward history of past attempts, disputed valuation, plus …
… the small matter of both banks’ Greek government bond holdings.
According to Niall O’Connor, European banks analyst at Credit Suisse, GGBs (and therefore, haircut risk) were an important factor in Alpha Bank’s rejection of NBG:
Potential risks to capital from NBG’s large GGB portfolio (€20.2bn or €14.1bn excluding the Titlos swap transaction) vs just €4.6bn at Alpha. There is also uncertainty as to whether capital in NBG’s Turkish subsidiary could be brought back to Greece if it was required …
Put another way: NBG’s total net asset value amounted to €7.3bn in 2010, on CS estimates. Quite a burden for any partner — even after a €2.8bn cash call from NBG in September.
It might not be the absolute burden of Greek government debt that matters here, however. Even valuing the holdings would be tricky if Alpha had gone through with a deal, thanks to the propensity of the Greek banks to hold the government paper to maturity, rather than marked to market. In fact — depending on how an acquisition was structured, we wonder if there’d be a risk of actually having to mark to market. No wonder the outlook is poor.