Will Credit Agricole buy?

The sale of the State’s remaining stake in Emporiki Bank (formerly Commercial Bank of Greece) has become a Gordian knot which Economy and Finance Minister Nikos Christodoulakis has been called upon to untangle. The 9.6-percent stake in Emporiki was acquired by DEKA, the state portfolio management company, from the Postal Savings Bank. Emporiki Bank has entered into a formal alliance with France’s Credit Agricole. The agreement, signed in 2000, had been negotiated by Yiannis Stournaras, chief economic adviser to Christodoulakis’s predecessor; a few months later, Stournaras was appointed chairman of the bank. Credit Agricole had an initial 6.7-percent stake in Emporiki in 2000. Then, it acquired a further 2.5-percent stake, on which it had right of first refusal, as it has on the 9.6-percent stake. Credit Agricole has also bought a 2-percent stake through DEKA, raising its total stake in Emporiki to 11.2 percent. The agreement between the two banks runs through the end of 2007. Until that time, Credit Agricole must at least maintain its stake in Emporiki. Besides its 11.2-percent stake, Credit Agricole participates jointly with Emporiki in a number of subsidiaries founded as a result of the agreement. There was much criticism about allowing Credit Agricole into the agreement with such a small initial stake in Emporiki. Critics added that, through the subsidiaries, the French company would enjoy a disproportionate portion of Emporiki’s profits. The agreement, however, reflected their interest in the Greek market and that is not insubstantial: Credit Agricole has paid about 350 million euros for its participation. The agreement stipulated that, should Credit Agricole refuse to buy a further stake in Emporiki, the State could sell it on to another investor. Should the State’s stake have exceeded 10 percent and it wanted to sell, it was required to ask for permission from both banks. Nowadays, DEKA holds a 9.6-percent stake in Emporiki; the State wants to sell that stake, primarily to add to its revenue, though it also wants to decrease its participation in the banking sector. If Credit Agricole refuses to acquire the DEKA stake, the government can sell to either a single investor or several institutionals. Institutional investors hold between 6.5 and 7 percent in Emporiki. An obstacle to the sale arose when Credit Agricole demanded that the government find a lasting solution to the issue of bank employees’ social security and pension funds. Would it amalgamate all into a single fund or not? However, Christodoulakis, mindful of objections by the federation of bank employees (OTOE), has refused to speed up this reform. Should it choose to buy the 9.6-percent stake from the State, Credit Agricole would increase its own to 20.8 percent, something that allows it to include Emporiki in its consolidated results. Thus, its concern over the result of the reform on the finances of the employees’ fund is legitimate. However, Christodoulakis would not commit himself on this particular issue since, as he well knows, ensuring the finances of one particular fund would have an impact on the entire banking sector. Each year, Emporiki contributes 46.3 million euros to the employees’ fund. Stournaras says this has satisfied the condition included in International Accounting Standards, which obliges banks to cover for any deficit in these funds. Stournaras adds that the deficit is not serious. As things stand, both Christodoulakis and Credit Agricole are in for tough negotiations, as both are unwilling to budge much from their stated positions. However, Christodoulakis is at a disadvantage. If Credit Agricole refuses to buy the additional 9.6 percent, will any other single investor be interested, given that Credit Agricole already owns a bigger stake? One way to entice such an investor would be to offer a stake higher than 11.2 percent. This, first of all, would require the approval of the French and can happen only if Emporiki sells part or all of the shares it owns itself and which account for 5.3 percent of the bank’s shares. Thinking that Credit Agricole could, after refusing the additional stake, agree to bow out of its own volition would be optimistic, to say the least. Credit Agricole bought most of its shares at 48 euros per share, an amount that appears wildly extravagant now that Emporiki shares sell at about 17.5 euros. Credit Agricole would not wish to sell at such a huge loss – and no one would be willing to buy its stake at the purchase price. Thus, the most likely scenario is for Credit Agricole to buy the 9.6 percent, despite its reservations, and to continue increasing its stake to the point where it achieves a blocking minority (33 percent). This would be a very great development for Greece’s banking sector. Credit Agricole is Europe’s largest bank and this would affect competition enormously.

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