Credit Agricole announced plans on Monday to pay Alpha Bank 550 million euros to take Greek lender Emporiki off its hands, on top of billions it already injected into the subsidiary during the country's slide into economic depression.

France's third-largest bank said it was negotiating to sell Emporiki to Alpha, Greece's number three lender, for a symbolic one euro as it prepares to quit the country.

The planned sale by Credit Agricole, which has injected about 10 billion euros into Emporiki since 2006, the year it acquired the Greek bank, is part of a retreat to its French retail business after a series of ill-fated expansion moves. Its willingness to pay Alpha to offload the subsidiary also underlines the dire state of Greek banks, which have been hit by bad debts due to the country's crisis.

Credit Agricole shares were up 3.9 percent, outperforming the broader sector as it said the deal would help it to reach end-2013 solvency targets, bringing the stock's gains for the year to 27 percent. Greek government officials told Reuters on Monday that they expect the country's economy to shrink for a sixth straight year in 2013.

"What's important is that Credit Agricole is hinting that the transaction may be core equity tier 1 enhancing for 2013,» said KBW analyst Jean-Pierre Lambert. «They don't give the numbers at this point, but it could be good news for them."

Hoping to strengthen Emporiki further, Credit Agricole, founded 118 years ago as a federation of regional agricultural lenders, will boost a previously announced 2.3 billion-euro ($2.96 billion) recapitalisation by the 550 million. The move, which will convert into equity part of 4.6 billion euros in funding Credit Agricole had extended to Emporiki, will lead to a 2 billion euro hit to its third or fourth quarter earnings, analysts at Mediobanca said in a note, adding that this would translate into a 1 billion euro full-year loss.

Credit Agricole will also buy 150 million euros in convertible bonds to be issued by Alpha Bank, which would become Greece's No. 2 bank after National Bank if the exclusive talks now underway result in a final agreement, said Paris Mantzavras, an analyst at Pantelakis Securities.

Alpha Bank had the lowest capital needs compared to other Greek lenders and with the acquisition of Emporiki, which is fully recapitalized, it can cover a big part of its funding needs on its own and remain in the private sector,» he said.

Alpha has received 2 billion euros from Greece's bank support fund, the Hellenic Financial Stability Fund (HFSF). Alpha shares soared 7.8 percent.

Greek banks are under pressure to consolidate to survive a crisis that has made them rely on their central bank for liquidity while fears of a Greek departure from the euro zone have prompted an outflow of deposits.

Analysts say a sale of Emporiki to a Greek rival could start a long-awaited mergers and acquisition wave in the sector, with state-controlled Hellenic Postbank expected to be among the next targets.

"The news about Emporiki and the deal between Credit Agricole and Alpha Bank is a sign that action is being taken towards the restructuring of the Greek banking sector,» said Takis Zamanis, head of trading at Beta Securities.

National Bank and Eurobank had also been in the running for Emporiki.

The HFSF had told Emporiki's potential buyers that it would approve a takeover only if the bank were recapitalized and fully funded before being sold. Emporiki, founded in 1907, has a network of 300 branches in Greece and about 4,100 employees.

Credit Agricole is not the only French bank trying to cut its Greek exposure. Societe Generale is in talks to sell its Greek unit Geniki to Piraeus Bank.

For Credit Agricole, tax issues which have yet to be determined could make a big difference in the deal's final impact. «The remaining question is the tax treatment of the equity losses,» Lambert said. «It's to be negotiated with the French Treasury, but could provide an upside if a full tax shield is agreed upon."

The deal would also involve repayment in three installments of residual refinancing provided by Credit Agricole to Emporiki at the disposal date, the French bank said.

"While this disposal is a relief for Credit Agricole SA, which lost some 10 billion euros in Emporiki, it is unlikely to trigger a recovery of the group's profitability,» the Mediobanca analysts said, adding that they viewed the bank as fairly valued.

The deal is expected to be completed by the end of the year, added Credit Agricole, which has been advised by Nomura and law firm Clifford Chance in the talks. Alpha was advised by J.P. Morgan and Skadden, Arps, Slate Meagher & Flom.

[Reuters]