Emporiki sale will boost the efficiency of Greek banking

Emporiki Bank, one of Greece’s five largest lenders by assets, is going to fall into the hands of Credit Agricole, France’s largest bank, today in a move that is going to leave its mark on the Greek banking sector and the economy. Some six years after the initial agreement reached by the French bank and the Greek state, namely through Yiannos Papantoniou, the PASOK finance minister who oversaw Greece’s entry into the eurozone, making Credit Agricole the strategic partner of Emporiki, the control of the Greek bank is finally being assumed by the French. In an interesting twist, quite common in Greek politics, the successful completion of Credit Agricole’s public tender, which is going to give it control of more than 40 percent of Emporiki’s shares, is being hailed by conservative Finance Minister George Alogoskoufis as a great reform and the country’s largest-ever FDI (foreign direct investment). Unsurprisingly, for those who know Greek politics, it is being criticized by politicians from the main opposition party PASOK, which first initiated it. But, given the circumstances, PASOK seems to be losing out since it has come out criticizing the sale of Emporiki though nobody disputes that the entire process, triggered by Credit Agricole’s surprise cash offer for 100 percent of Emporiki, was transparent and fair to all interested parties. Of course, the French enjoyed the advantage of knowing Emporiki better than others since they had two representatives on the board and managed common subsidiaries with Emporiki in bancassurance, consumer finance and asset management. Credit Agricole also enjoyed the advantage of being the first to initiate the public offer, offering cash when other Greek banks could not do the same. And the price of 25 euros for each Emporiki share offered by the French bank could have been higher if other banks had joined in submitting bids but this did not materialize, undermining the argument of a low share price put forward by the critics of the sale. There is little doubt that other Greek banks would have liked Emporiki to stand alone. Despite efforts to increase its efficiency, the bank is not considered a major competitive threat by its peers. It is therefore understood why the others would have liked the status quo in the domestic banking sector to remain unchanged. At least for as long as retail banking keeps expanding by double digits. Nevertheless, developments during Credit Agricole’s public offer and Bank of Cyprus’s withdrawn cash-and-stock offer also showed something else. The large Greek banks had come to regard the acquisition of Emporiki by Credit Agricole as better than having their competitor end up in the hands of one of their other main competitors at home. The latter would have produced a chain reaction of M&A activity for which they were apparently either unprepared, at least at this point in time, or simply unwilling to see it happen. Whatever the case, the assumption of control of Emporiki by Credit Agricole looks as if it was the second-best or second-worst case for the major Greek banks. They may be right. The French company is likely to focus for at least the next six months on the reorganization of Emporiki and its integration into the group rather than initiating a price war that could hurt the earnings of its new acquisition as well. The new management at Emporiki Bank is likely to show its cards when it unveils its new multi-year business plan, expected by the end of 2006 or early 2007 at the latest. By that time, the controlled squeeze of fat interest rate spreads in loan categories, such as mortgages, which is already taking place, is likely to continue, bringing the Greek average spread closer to the eurozone average. It is certain that Credit Agricole will do more in bringing new banking products into the Greek market and may even try to compress spreads but it is likely to do it in a mild manner that will not upset the equilibrium in the Greek banking sector. To this extent, top officials say the main Greek banks may be right after all. The biggest deal in Greek banking by a foreign bank is indeed for them the second best or worse, depending on which way they look at it. But, this is true for the short-to-medium term. Stiffer competition In the medium-to-long term, the presence of Credit Agricole in the local market will stiffen competition and the main local bank will certainly have plan its strategy. After completing its restructuring, Emporiki Bank will be more efficient and leaner and its employees will be more motivated and energetic in selling more products to customers at prices that will benefit from the French Group’s know-how and financial muscle. Already, Credit Agricole has announced that it would like to have each employee sell five products instead of 2.5 at present in five years’ time, make «part of total remuneration based on commercial targets and objectives.» This is in addition to the bank refocusing the training program in line with its standards. Unlike other well-known foreign banks with a presence in Greece, the French bank will have a large branch network at its disposal to do the job. This will make them a major competitor in the retail banking market, which is likely to be striving to grow at single-digit growth rates after many consecutive years of double-digit growth and more normalized euro interest rate levels. Undoubtedly, the takeover of Emporiki by Credit Agricole will have consequences for the other major Greek banks. However, these may become more apparent later rather than sooner (in the next six months to a year). So, the large Greek banks have still some time to rethink their strategy and decide what is the best way to increase their size and attain economies of scale while becoming more efficient.

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