ECONOMY

Banks count costs, benefits of merger

National Bank of Greece (NBG) said yesterday that it will take a charge of 220 million euros stretched out over a three-year period to cover the costs of its takeover of Alpha Bank, the largest privately owned bank in the country. It expects to recoup the expense from annual cost savings of 285 million euros coming from lower operating costs and higher revenues, the full benefit of which will be felt in 2005. NBG Chairman Theodoros Karatzas said merger costs will be spread over the 2002-2004 period. The figure includes the costs of a voluntary redundancy program for employees of both banks. He said that an estimated 10 percent of staff at the parent banks are expected to take advantage of the scheme. NBG Deputy Chairman Theodoros Pantalakis told Kathimerini English Edition that the bank is projecting some 2,100 redundancies. The banks’ combined workforce of slightly more than 30,000 employees has raised questions as to how the new entity plans to bring about cost synergies without going against legal and cultural constraints relating to layoffs. Karatzas said the banks have pledged not to cut jobs but instead will continue a successful voluntary redundancy program implemented in recent years. Both NBG and Alpha adopted early retirement and voluntary redundancy schemes in order to trim a bloated workforce following their respective takeovers of Mortgage Bank and Ionian Bank in the 1990s. Karatzas said the merged bank will benefit from annual cost synergies amounting to 200 million euros as a result of an integrated IT system, combined back office operations, network restructuring and better risk management. Cost savings in 2002 are projected at 50 million euros, rising to 120 million euros the following year and eventually to a targeted 200 million euros in 2005. He said that financial gains could soar following the implementation of market-friendly tax reforms. The NBG chairman said that expected higher retail sales and cross-selling of bancassurance products should help lift revenues by about 85 million euros on a yearly basis, with the full benefits expected in 2005. NBG said it will issue 144,022,324 new shares to finance the takeover. Alpha shareholders will be able to trade in nine of their shares for seven of the merged bank’s, with the swap ratio corresponding to 61.3 percent of NBG’s market capitalization and the remaining 38.7 percent of Alpha’s. The share swap values one Alpha share at 0.76 of the integrated entity. Based on the banks’ average share price in the third quarter, the share exchange ratio is logical, said Nikos Galoussis, research head at Kapa Securities. The proposed ratio represents an 8.8-percent premium on Alpha equity as valued on November 19. Responding to this, investors had taken NBG shares down by some 9 percent at mid-trading yesterday. NBG shares closed 5.34 percent down while Alpha rose 0.75 percent. The integrated bank will be called National Bank. The legal procedures for the integration are due to be completed in the first half of 2002. NBG was advised by Schroder Salomon Smith Barney and Alpha by Goldman Sachs.