Scenarios about banking sector realignments

The rebound of the Athens Stock Exchange (ASE) in the last three months is fueling scenarios of surprise realignments in the banking sector, with a key role being played by the sizable government stakes in the National Bank (NBG) and Emporiki Bank – 21 percent and 9.46 percent respectively. The scenarios proliferated after the recent meetings of Economy and Finance Minister Nikos Christodoulakis with the heads of the two banks, Theodoros Karatzas and Yiannis Stournaras, and a less advertised one with Alpha Bank president Yiannis Costopoulos early last week. The large stakes which the government controls in the two banks give Christodoulakis, who has promoted several part-privatizations and flotations of public enterprises, a potent policy instrument which theoretically could bring about broad changes in the country’s banking market «map.» If market conditions were ripe and favorable, the government’s possession of such a large stake could have potentially permitted NBG’s full privatization; however, the government appears unwilling to relinquish control of the country’s biggest commercial bank, while the failure of the experiment to merge with Alpha Bank 18 months ago has left little appetite for ambitious experiments. By contrast, the sale of a part of the public interest in NBG seems a more credible proposition, provided an ample degree of dispersion among institutional investors is ensured; it would also serve the government’s eagerness to raise considerable capital to reduce public debt. A strategic partnership with another bank involving the taking of a 10-percent interest in NBG would not create serious upheaval in the sector that the government wants to avoid. The main questions arising in such a scheme are who would be willing to buy such a stake; under what terms; what synergies would such an alliance create; and to what extent it would serve the interests of NBG that would possibly be the large entry gate of a foreign banking group in the domestic market. Scenarios of a merger between NBG and Emporiki, probably arising from the fact that the government holds large stakes in them, do not have any logical basis For a start, the managements of both institutions have obvious reasons to fight such a prospect. A merger – practically impossible – would mean full nationalization of two large banks into a lumbering giant with about 20,000 employees and where it would be almost impossible to carry out any serious reduction in staff that would bring about desired economies of scale. Moreover, such a scheme would raise extreme difficulties in merging the social security funds of the two banks. By contrast, an enlargement of the 11-percent interest which France’s Credit Agricole presently holds in Emporiki to about 20 percent through the purchase of the government’s stake would be a much more smooth development and would also be in line with contractual obligations toward the French. The question is whether Credit Agricole will decide to respond to Christodoulakis’s invitation to exercise its option for a further package and what conditions it would set to go with it, particularly as regards Emporiki’s thorny social security fund problem. Such constraints certainly did not prevent the recent rise of bank shares, although it would have been unfair to uniformly attribute this to speculative games; in the last three months, Emporiki has gained 78.7 percent, NBG 67.04 percent, Alpha Bank 50.6 percent, Eurobank 45.8 percent and Piraeus Bank 30.95 percent. Two smaller banks, Egnatia and General, also performed admirably, advancing 76.5 percent and 59.09 percent respectively. Present market conditions and the fundamental indicators of banks, which are trying to recover after about three years of continuously falling profits and are laden with large bond loans issued to support expansion, are not particularly favorable to realizing any such scenarios. The only deal that seems to have a good chance of getting off the ground is the merger of the Postal Savings Bank with the Bank of Attica; this is projected for the end of the year, while according to economy ministry sources, any deals involving NBG and Emporiki would also be announced around the same time. Regarding banks where the government still has large interests, a lot is seen as depending on political factors. But overall, most scenarios focus on the moves private banks are likely to make in the near term. Piraeus Bank is seen as having secured ample capital sufficiency through its merger with ETBA bank without resorting to borrowing and has been in a position to organize its next move. And as regards Alpha Bank, it is considered a matter of time before it moves, while Eurobank’s protracted silence could be interpreted as indicating concentration before the big fight.

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