Matina Stevis, a Greek journalist reporting from Athens, submits this guest post for FT Alphaville.
A doubly exciting piece of news sent Blackberries abuzz across Greek beaches today, violating the sacred Saturday lunchtime of the last August weekend. Alpha Bank and EFG Eurobank, the second and third largest Greek lenders, are to merge. And not only that, but they reportedly have a brave new investor in the form of the investment arm of a Qatari fund — possibly Paramount Services Holding Limited, and cue the visualisations of a gallant man with headscarf on a white horse.
All is to be formally revealed in a joint press conference that will be held on Monday at 14:00 local time (12:00 BST), after the two banks’ boards separately approve the deal. Here’s what I know and what my sources are telling me.
‘Twas inevitable
Some form of a deal in the top four Greek banks (NBG, Alpha, Eurobank, Piraeus) had long been expected — NBG and Eurobank had failed to merge earlier this year, and all possible pairings of the four banks had been rumoured in Athens at some time or another. And the timing of the deal I’ve heard about today is the outcome of a number of pressures:
First, these banks have been finding it impossibly difficult to boost their liquidity through the market. Over the last week, rumours were rife that Greece had allowed them access to the nebulous ELA facility, which observers interpreted as a last-ditch effort to save them.
Second, all Greek banks are currently in nail-biting mode as a reported 300-strong Blackrock task force is expected to arrive in Athens imminently to check their books meticulously in an Ireland-style raid.
Third, all Greek financials have been taking an unprecedented beating in the Athens Stock Exchange over the last two weeks: Alpha Bank and Eurobank have each lost 22-25% of their value since August 16th.
Fourth is the announcement by Greek finance minister Evangelos Venizelos that any bank that would resort to the Hellenic Financial Stability Fund for liquidity assistance would essentially be considered nationalised. No shareholder likes that.
And some additional background details on the deal:
- Each bank has received 950m euro since 2008 in state bailout money, which neither has paid back.
- It’s been reported that the Qatari fund already holds at least 5% of Alpha Bank, since 2008.
- Alpha Bank holds approximately 4.5b euro in GGBs
- Eurobank holds some 9b euro in GGBs
- Eurobank is one of the eight European banks that failed the July stress-tests
The merger will, according to our Eurobank sources, result in the largest commercial bank in the Southeastern European region. It will rank at around 25th largest in Europe with 200bn (UPDATED) 150bn euro in assets and boast 2,000 retail stores, 8m customers and 80b euro in deposits.
Breaking the curse
After several aborted attempts to bring Qatari investments to Greece (through such state assets as the Astakos port and the now-defunct Hellenikon Athens international airport), there’s been a pun going around in Athens. It emanates from the fact that “Qatar” sounds too much like the Greek word for curse, “katara.” You get the drift.
Well, this curse-talk is now a thing of the past. The curse has been broken. Other sources are reporting that the Qatari investment will be of about 500m euro. Our sources tell us that the Qatari investors are prepared to put up from 2b euro upwards in the newly formed bank.
Firstly they will be looking to buy out the Greek state’s preferred stock, which currently amounts to 1.9b euro (from their joint bailout funds received since 2008 – see above). They will then be aiming to invest further at a later date, having taken into account the Blackrock check’s results on capitalisation, the (21%?) haircuts expected to hit GGBs, any efficiency savings from the merger and the potential sale of some of the banks’ subsidiaries and assets in Greece and abroad.
But the most interesting issue to raise here is that Qatar could have just bought the two banks directly off the stock market, which would have cost them precisely 1.957b euro last Friday. We understand that the decision to enter the equation after the Eurobank-Alpha merger instead is indicative of ongoing general talks between the Greek authorities and the emirate. The role now assumed by this new investor, who will give a desperately needed 1.9 billion euro to the Greek state by buying it out of the merged banks, appears to be one of a “preferred” interlocutor.
What’s next?
Needless to say, this knocks the National Bank of Greece off the “biggest Greek bank” pedestal and further into troubled waters. Our sources in the domestic finance sector are certain that the only way forward for the oldest (not as glamorous as “biggest”, is it?) Greek lender will be to join forces with the fourth Greek bank, Pireaus. But they too will need some capital injection if they are to survive the haircuts, lack of liquidity and Blackrock challenges ahead. Only a foreign investor will be able to offer that kind of support.
This is a critical moment for the Greek banking sector, if the foreign participation is to materialise as we’ve been hearing. It can also prove critical for the implementation of the derailed Greek austerity plan, particularly if the finance ministry is to expect new investors to offer cash and become involved in the country’s economic fate, as the expected Qatar move seems to do.
But what the Alpha-Eurobank merger also shows is that by adding two banks’ troubles you get more aggregate trouble. It will take determined, resilient, patient and well-endowed investors to endure the tumult of the next few months and years in the Greek market. Alpha and Eurobank are hoping that Qatar is one. More will certainly be needed.
Related link:
EFG Eurobank and Alpha Bank to merge – FT