The Greek government is determined to reject a proposal by the country’s international creditors to cancel the merger of National Bank with Eurobank Ergasias, which is already in the final straight.
The team of representatives from the European Commission, the European Central Bank and the International Monetary Fund – known as the troika – is due in Athens next week, when it is expected to insist on the cancellation of the merger, a demand that could create serious legal problems and have a negative impact on the Greek market. The cancellation of the merger would also wipe out benefits of 3 billion euros for the two lenders, a factor that had compelled the troika to look upon the issue favorably in the past.
The merger, along with the general recapitalization process of the credit sector, were discussed during a meeting on Friday between Prime Minister Antonis Samaras and Finance Minister Yannis Stournaras.
According to sources, the troika is adamant that the two banks will have to be recapitalized separately and remain as separate legal entities. The troika technocrats are concerned that the new bank to be created will have assets of 170 billion euros, almost the same as the country’s gross domestic product (190 billion). As a result, the creation of such a big bank would entail risks and the troika is worried about what would happen if it ran into trouble.
Greece’s creditors are also worried that the new bank will not be able to secure the required amount of 10 percent from private investors in the recapitalization process, which means it would come under the control of the Hellenic Financial Stability Fund (HFSF) and the state sector. That would make the process of finding a private investor later on to buy a big lender extremely difficult. The HFSF will have to sell all of its bank holdings within five years.
If National and Eurobank were to be recapitalized separately, it would be easier for them to be sold in future, the troika argues, and their price would be greater in total than if they were sold as one entity. They would also be able to constitute two major pillars of the local credit system, playing their part in its consolidation and concentration through absorbing other, smaller lenders. If they do merge, according to the troika, it would be much more difficult for them to acquire any smaller banks.
Both the government and the management of National – which also controls Eurobank after the recent share swap – disagree with those views. Government sources are expressing optimism that the troika’s demand will be successfully rebuffed and the sector’s biggest ever merger will be completed after all. They stress that procedures are at such an advanced stage that a cancellation would have a serious psychological effect on the credit sector and the economy in general.
Similarly, National insists the merger will proceed unhindered and the recapitalization of the new, expanded group will take place. According to the timetable, the legal merger of the two banks is due to be completed within June.
The big question, however, is why the troika did not raise the issue earlier. The merger agreement was announced in October and has been approved by all regulators in Greece and the European Union. The public offering was accepted by Eurobank shareholders, with National now owning 85 percent of Eurobank shares. National has issued 300 million new shares that have been trading on the local bourse since February 27. If the troika was against the merger, it should have raised the issue earlier, as it may have now reached the point of no return.