ATHENS, Greece – Greece’s second and third largest lenders, Eurobank and Alpha Bank, on Monday announced plans to merge in order to better withstand the country’s acute financial crisis.
The widely anticipated move would create Greece’s biggest bank, and will see a €500 million ($720 million) investment from a Qatari investment fund, Paramount Services Holding Ltd., officials from the two banks said.
The deal was immediately welcomed by the country’s Socialist government and caused shares to surge on the Athens Stock Exchange. The banking sector as a whole closed the day 27 per cent higher with National Bank of Greece, the country’s largest lender, posting a 29 per cent gain.
The benchmark General Index in Athens ended 14.4 per cent higher at 1,006.59, rebounding past the 1,000-point threshold just one session after falling to a 15-year low under 900 points.
Greece is in the throes of a major financial crisis, and only avoided bankruptcy after two international bailouts agreed over the past two years, worth a combined total of €219 billion ($315 billion).
The country remains cut off from bond markets because investors demand prohibitively high rates to lend it money over the long-term – the yield on the 10-year bonds is at 18 per cent, compared with the benchmark German rate of 2.18 per cent.
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The Greek central bank and government have repeatedly urged banks to consolidate, arguing it will afford them greater protection from the fallout of the crisis.
“The decision by the two banks to proceed with a merger is a positive development,” Finance Minister Evangelos Venizelos said. “This initiative demonstrates that today’s crisis could serve as a corrective opportunity and provide a boost in the financial sector as well as in the real economy.”
The deal, which requires regulatory approval, would create Greece’s largest bank by assets – €146 billion ($211.5 billion) – with €80 billion ($115 billion) in deposits.
The terms of the merger agreement include an exchange ratio of 5 new Alpha Bank ordinary shares for every 7 Eurobank EFG ordinary shares.
In February, Alpha rejected a takeover bid from National Bank of Greece, arguing that the proposed terms were not beneficial to its shareholders.
“At a time when it is hoped Greece will experience the first signs of a recovery through the implementation of reforms and the support of its European partners, the new bank will aim to contribute to the resumption of growth in Greece and our country’s connectivity with its neighbouring markets in Southeastern Europe,” Alpha Bank chairman Yannis Costopoulos said.
He added that the deal conveyed a positive message to international markets, “which were worried that everything was going to the Devil” in Greece.
Eurobank was one of the two Greek lenders that failed Europe-wide stress tests in July. The new group is to implement a plan to strengthen its capital by €3.9 billion. That includes the Paramount investment and a rights issue of €1.25 billion.
The banks plan to conclude the merger by mid-December, creating a joint network of more than 1,300 branches in eight countries, including Bulgaria, Cyprus, Romania and Serbia.
Paramount, the Qatari fund, has held a 4 per cent stake in Alpha since 2008. Little is known about the fund, although an Alpha statement Monday described it as “a company representing the business interests of the most prominent family in Qatar.”
That suggests it could be a personal investment firm for the natural gas-rich Arab state’s ruling Al Thani family.
Alpha Bank has hired Citibank and JP Morgan as financial advisers, while Eurobank has employed Barclays Capital, Goldman Sachs International and Rothschild.
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Derek Gatopoulos in Athens and Adam Schreck in Dubai contributed
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