More consolidation in sight

Greece’s biggest bank merger, linking National Bank and Alpha Bank into a domestic and regional powerhouse, has reignited further consolidation scenarios in the eurozone’s newest member. Smaller banks are now expected to merge or join up with foreign players in moves likely to be welcomed by the country’s reform-minded government. The goal of the government is the restructuring and modernization of the banking system through privatizations and mergers to make banks more competitive in the new international environment, Finance Minister Nikos Christodoulakis said on taking office last week. National and Alpha, Greece’s two largest commercial banks, agreed on a 10 billion euro ($9.2 billion) merger on Thursday via a share swap, becoming the domestic leader and big enough to succeed in the common currency club. They will be poised for expansion into the Balkans and will dominate the Greek sector with a market share of more than 50 percent. The move leaves Greece’s other big players – EFG Eurobank Commercial Bank, Piraeus Bank and Agricultural Bank – reconsidering strategy in a changing banking landscape. It was a wake-up call for the market as far as the timing of the deal. Clearly we’re headed for more consolidation, said a senior official at a state-controlled bank. Possible new deals are likely to involve mergers among Greek players, as foreign banks are mostly interested in points of sale and access to networks to promote their products in Greece, he said. Greece has already seen some consolidation, with tiny banks being gobbled up and some foreign players coming in to take strategic shares. France’s Credit Agricole bought a small, 6.7-percent stake in Commercial Bank last year, while Deutsche Bank has owned 10 percent of EFG Eurobank since 1998. Beyond the big league, sector consolidation is likely to force Greece’s smaller banks to explore ways to defend their turf through alliances and mergers. Three such banks that may become part of a larger group are Egnatia, General Bank and Bank of Attica, says National Securities analyst Yiannis Markakis. Each of these banks may become a target for a foreign or domestic predator intent on expanding market share. Each bank has a good geographical spread of branches and the cost to acquire a big stake is not that large, Markakis said. Looking at their market capitalization, all three banks are valued between 276 million to 322 million euros, roughly 5 percent of National Bank’s capitalization of 6.82 billion euros ($6.18 billion). According to a report from New York, Moody’s Investors Service has placed on review for possible upgrade the ratings of National Bank of Greece and Alpha Bank. Both banks are currently rated at A3/Prime-2 for foreign currency deposits and C- for financial strength. Furthermore, both banks are rated at Baa1 for subordinated debt, while Alpha Bank is also rated at A3/Prime-2 for senior debt, for debt issues through special purpose vehicles. Moody’s said that the expected merger between the two banks would create a dominant financial services group, with impressive market shares in Greece across all business segments.

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