The race for control of Emporiki Bank continues but the field of potential contenders appears to be narrowing. At the same time the prospects of a completely different Greek banking landscape at the start of 2007 are rising as some large local banks view Emporiki both as an offensive and a defensive tool and Bank of Cyprus has the potential to cause another contest. Not so long ago, top Greek bankers, such as National Bank of Greece’s CEO Takis Arapoglou, held the view that the second round of consolidation among the large Greek banks would take place when loan volume growth rates in retail banking, the profit engine of local banks since the start of the decade, would slow considerably. The need for exercising greater pricing power in a small and maturing market with relatively large spreads in certain loan categories, such as mortgages, would have been the main driver for the second round of consolidation among the heavyweight banks in the sector since the 1990s. Of course, corporate activity has been much more buoyant in the league of small and mid-cap banks since the latter cannot afford to wait that long. However, National Bank’s decision to pursue the acquisition of Turkish Finansebank has put it out of the contest, leaving Alpha Bank, EFG Eurobank and Piraeus Bank in the field with Marfin Financial Group considered a long shot ever since cash-rich Dubai Investment Corporation became its major shareholder. But the battle for control of Emporiki Bank, triggered by French Credit Agricole’s (CASA) tender offer for 100 percent of the bank, appears to have speeded up developments and is likely to be the catalyst for the second round of M&A activity in the banking sector. Although all big local banks knew and were prepared for the sale of the state’s direct and indirect stake in Emporiki, it seems as if none was ready for CASA’s move and none was aware of Piraeus Bank’s decision to seek a strategic alliance with Bank of Cyprus. In addition, it appears that investment bankers and fund managers have come to the conclusion that the top management of the Cypriot bank became aware of the stock purchases made by Piraeus Bank relatively late. They therefore consider its bid for Emporiki more of a defensive move to fend off Piraeus and buy time than anything else. This was made clear by the position of a fund manager at UK-fund manager F&C, a shareholder of the Cypriot Bank, carried by Reuters midweek. If they are right, this means the top echelon of Piraeus Bank may also have been surprised by the Cypriot bank’s bid for Emporiki. After all, the potential pair of Bank of Cyprus and Emporiki is a larger and quite different animal than Bank of Cyprus standing alone, requiring more restructuring effort and resources at a time the Greek banking market is maturing fast and spreads are tightening up. Whatever the case, the indirect involvement of Piraeus Bank has forced the other two major banks, which may not have had the intention to put out a tender offer for 100 percent of Emporiki Bank, to rethink their strategy and options. Alpha, Eurobank According to press reports, Alpha Bank is likely to bid for Emporiki, a move which may provoke a response from EFG Eurobank or its parent. Of course, this is not an easy decision and one has to weigh both the pros and cons of such a move, such as the degree of branch overlapping with Emporiki and other issues related to a sizeable acquisition. But any bank without a dominant shareholder and a high degree of free float is always more vulnerable to a takeover attempt from a third party than others. So it has to look at potential targets from both angles, that is, the offensive and the defensive, and form the appropriate strategies accordingly. Alpha Bank fits this description, as does Bank of Cyprus. But unlike the Cypriot bank, which reacted to the purchases of its stock by Piraeus Bank, Alpha Bank has more room to maneuver, provided it is ensured by the proper authorities that a share capital increase in kind to help it buy a controlling stake in Emporiki Bank will not fall victim to the restrictive Greek laws. Even if this does not materialize, Alpha Bank still has the option to form an alliance with a foreign player to become a strong contender for Emporiki. In the unfolding episodes of the Emporiki saga, what started as the most frightening scenario, in which Credit Agricole acquires control of Emporiki, has turned into the most benign for banks wishing to preserve the current status quo in the Greek banking sector. Officials from large Greek banks were not happy to see the entry of the French bank in the Greek market because they thought it could have increased competition and compressed the interest rate spreads at a much faster clip. Alarm However, the latest developments have apparently alarmed them enough to consider the potential acquisition of Emporiki by the French side as less threatening than having one of their main domestic competitors gain control of Greece’s fourth-largest bank. They may be right but even so, M&A is likely to continue if Bank of Cyprus chooses to fight off Piraeus’s approach. In this case, Bank of Cyprus could turn to either Alpha Bank or EFG Eurobank for a white knight, provoking a war between Greece’s largest banks with wider implications. There is little doubt the Emporiki affair will continue in the weeks to come and may have different twists. It is becoming more and more clear, however, that the chances for a foreign contender to show up are diminishing as it becomes more and more a Greek affair with Credit Agricole being the only foreign player. On the other hand, the chances for a major realignment in the Greek banking sector are increasing with Bank of Cyprus present, even if Emporiki ends up in French hands.