Do not wreck the deal

The Greeks have never failed to shoot themselves in the foot and it could not be different this time around. The decision by the board of the National Bank of Greece to acquire Turkish mid-sized bank Finansbank has given politicians and labor unionists an opportunity to prove their ability to politicize even a business deal. In so doing, they may do more harm than good for the country’s largest commercial bank and even the prospects of the Greek economy in the years to come. In April, National Bank of Greece announced its decision to buy from FIBA Holding and its affiliates a 46 percent stake in the ordinary shares of Finansbank and 100 percent of the founder shares for a total amount of 2,291 million euros. It also announced its intention to proceed with a mandatory offer for the remaining 44.3 percent of Finansbank’s ordinary shares on the condition it received the necessary regulatory approvals. Moreover, the major shareholders of the Turkish bank also agreed to sell a sufficient number of ordinary shares so that National Bank ends up with at least 50.01 percent of Finansbank upon completion of the mandatory offer. To help finance the acquisition and others in the region, National Bank announced its plans for a 3.0 billion euro rights issue. There is no question that the acquisition of a mid-sized Turkish bank by Greece’s largest bank was a bold move which carries risks as well as the promise of growth. Being the biggest foreign investment by any Greek company abroad, it adds even more importance to the deal. The fact that it was given the green light by both the Greek and Turkish governments also highlighted the willingness of both sides to work together on the business side to help promote cooperation and better understanding of the people in the two countries. Given the tumultuous historical relationship between Greece and Turkey, one would expect to hear more voices opposing the acquisition of Finansbank by National Bank from the Turkish side. Some even had predicted a flight of customers from the Turkish bank to others, making the deal quite risky for the Greek side. Well, they were wrong. The acceptance of the deal from the other side of the Aegean appears to be much more mature than it is from the Greek side up to now. According to all accounts, the only critical Turkish report has centered on the tiny equity stake the Orthodox Church of Greece holds in National Bank and its representation in the board of directors of the country’s largest bank. No customer defections have been reported. On the contrary, the criticism of the deal from the Greek side has been severe. At first it was about the rich valuation of the Turkish bank and the sizable sum National Bank was called to pay. Indeed, paying 3.6 times the book value of a bank, even if it is an essential component in your plans to expand in Southeastern Europe and become a regional leader is demanding. However, this was much less than what Austria’s Erste Bank paid to buy BCR, Romania’s largest bank, a few months earlier. It was even less than what Greece’s EFG Eurobank Ergasias paid a few weeks later to buy a majority stake in a smaller Turkish bank.  Undoubtedly, the political risk attached to this acquisition is larger than the acquisition of a Romanian or Bulgarian bank whose countries are headed toward EU membership. But the large banks in the neighboring countries have already been sold and Turkey, with its 70 million plus young population along with its under-penetrated banking services, cannot be ignored. Of course, some may argue that the target population is not 70 million but some 30 million for purchasing power purposes. Even so, it is a big fish for anyone to ignore, especially National Bank, which has aired its aspirations to become a peripheral leader.  The fact that emerging markets have come under a lot of pressure since then and the Turkish lira has fallen against both the dollar and euro have given critics more ammunition to attack the deal. This has been compounded by the 20 percent slide of National Bank shares since the announcement of the deal on the back of a falling Athens bourse and planned large 3.0-billion-euro rights issue. One would have understood if the criticism of the deal had come from analysts, brokers and fund managers with a stake in National Bank. Unfortunately, the main criticism emanates from politicians and trade unionists for different reasons. Politicians, especially from the main opposition PASOK party, have used the occasion to call on Takis Arapoglou, the chairman and CEO of National Bank, to testify before a parliamentary committee about the deal. This, despite the fact that the state has no longer any direct interest in the bank’s share capital and its indirect interest has dwindled. Obviously, some politicians think they can hurt the government by hitting hard at Arapoglou using the Finansbank deal as a pretext. They are obviously wrong. If they needed some clarifications about the deal they could have asked to see the top brass of the bank in person and not to make a spectacle in Parliament. It is clear that they try to turn a business deal into a political show. Of course, their concerns about the privatization of National Bank though the planned 3.0 billion euro rights issue are valid since a number of state-controlled pension funds do not have the money to participate. But this is not more so than the failed merger of National Bank and Alpha Bank a few years ago, which some of them eulogized. The state would have no control over the new merged entity even then. It also understood why trade unionists are angry about the prospect of privatization of the National Bank and therefore demand that loans being given to pension and other state-controlled funds to exercise their rights in National Bank’s share capital increase. But perhaps even more important for them may be the capacity to hire and promote your people in the bank’s hierarchy. On the other hand, it is also strange to hear the finance minister saying it will not allow funds to take loans to participate in National Bank’s 3.0-billion rights issue. It shows how wrong the current system is where the government appoints the boards of state-controlled pension funds and decides on their behalf. National Bank’s Turkish deal should be judged on business and not on political grounds. Politicians and trade unionists along with government officials should refrain from doing what they know how to do better: undermine important business deals.