Surging bank stocks fuel scenarios of realignments

Gains of 46.7 percent in the banking index of the Athens Stock Exchange (ASE) since the beginning of the year, particularly in recent sessions (3.79 percent yesterday), has again led to a proliferation of scenarios raised about business deals in the sector. There is a widespread belief that when conditions are ripe, a new round of strategic moves will begin – and the expectation that this will be initiated by the government, which, with its strong presence in the banking sector, has helped the rally in bank shares. The industry is now comprised of five main domestic players and a handful of small, «boutique»-size banks that are not as seriously regarded. As things stand today, there are three possible scenarios of change. One is the dynamic entry of a big foreign bank in the Greek market through an important acquisition. A second is the privatization of the Postal Savings Bank (TT) through a tender, and a third is a surprise move by the leading private players which would alter current balances significantly. Among the big players, the rumors of a merger involving the National Bank of Greece (NBG) and Emporiki Bank, or of a revival of the plan to merge NBG with Alpha Bank, are unlikely to materialize due to objective difficulties. Based on the characteristics of each bank, only a merger by mutual agreement between Alpha and EFG Eurobank could be considered feasible. A new scheme resulting from a big merger would have to be based on the potential for extensive synergies. However, the size of the big players and the shares they have today in the main segments of the banking market do not appear to be leading to synergies that can produce any significant rises in bank income. A merger would attract much greater interest if synergies led to economies of scale and drastic cost cutting. But everyone is aware that inflexible labor rules in the sector do not allow any such worthwhile prospects. «Even if the three or four biggest Greek banks merged into one, they would create a scheme that would be the 15th largest in Europe but it would be an overblown organization offering doubtful prospects to its tens of thousands of employees and would have a banking monopoly in a limited local market,» says a senior banker. The most mooted scenario and the big question at present concerns Alpha Bank, Greece’s largest private bank. At the time of the attempted merger with NBG about 20 months ago, Alpha’s chairman Yiannis Costopoulos said that any strategic alliance or acquisition by a foreign bank would make the Greek partner a mere appendage of the foreign organization. Rumors after the failure of the plan with NBG again referred to contacts with foreign groups, but there were no developments. According to the most recent rumors, Alpha intends to sell up to 10 percent of its shares that have emerged from the absorption of Alpha Finance, and that such a scheme is not part of a strategic alliance plan. This poses an interesting question: For what reasons would Alpha consider selling a block of shares? Such a decision would suggest either that the bank does not fear the possibility of an aggressive buyout, or that it does not rule it out. In a bank with such a wide dispersion of shares as Alpha and without a basic shareholder – if the goal is to guard the entity’s autonomy – the sale of such a large share block would drastically reduce management’s current independence and appears «odd.» A possible explanation could be a desire to boost Alpha’s capital base and improve its capital adequacy, but – according to the official financial data – after the hybrid bond loan which the bank has taken to bolster its Tier 1 capital there appears to be no such pressing problem. Another likely source of moves is Emporiki Bank, in which France’s Credit Agricole is already the biggest shareholder with a 9.6-percent stake. The French are said to be considering increasing their share, which would greatly increase their potential for acquiring the management; this would be the first dynamic entry of a big European player in Greek banking. The picture is expected to become clearer next month. If the French do not make a move, the initiative is likely to be assumed by the government, the other major shareholder, or by still another group. To be sure, the government has a number of loose ends to tidy up as regards the smaller banks before applying itself to the big shots. A nagging issue is the lack of foreign buying interest for the General Bank, whose part-privatization has already failed once and is in dire need of a capital boost. Rumors have it that NBG is the most likely one to «facilitate» government efforts if no prospecting buyer emerges. For the Bank of Attica, its likely merger with the Postal Savings Bank (TT) would be a major development, possibly representing the first in a series of bigger moves in the sector. Reports yesterday said TT is feverishly preparing its 2002 financial statements, in view of the expected bid for a 34-percent stake by the Engineers’ Pension Fund (TSMEDE), a major shareholder of the Bank of Attica. TT is said to have achieved profits of 274.1 million euros for 2002, above expectations. Egnatia or Aspis Bank theoretically could have become the model for the viable «boutique» bank, but things have turned out differently. Egnatia has not managed to grow or specialize in sectors that would represent advantages for a possible buyer. Aspis, despite efforts to boost its market presence, belongs to a financial group with a number of problems, resulting mainly from decisions of its basic shareholder. Whatever the developments, bank stocks are certain to rise much further still. This is not welcome news to many: high capitalizations may create the illusion of higher values but also lessen the prospect for any deals.