The Greek banking sector has been one of the most concentrated in Western Europe, with a handful of banks controlling the vast majority of assets, loans and deposits. Yet, in an age where size matters, the large local banks are considered small-to-medium by European standards. This alone may provide an incentive for intra-country marriages in the next six months or so if domestic loan growth continues to show signs of fatigue. With the exception of Emporiki Bank, which passed into the hands of France’s Credit Agricole in 2006, the rest of the big Greek banking groups were largely formed in the 1990s. One would argue that even Emporiki’s deal is a by-product of the last decade since the French side first acquired a minority equity stake in Emporiki in 2000. Mergers and acquisitions flourished in the Greek banking sector in the second half of the 1990s when a number of state-owned and private banks were sold and, especially in 1999, the heyday of stock-market mania, made hefty capital gains. In 1999, when the Athens Stock Exchange hit a historic high, Alpha Bank bought a 51 percent equity stake in Ionian Bank owned by Emporiki and a few months later initiated the process for the merger, solidifying its position as the second-largest commercial bank in the country. It succeeded, although the bigger size came at a cost since the completion of the merger took some time and its profits were hit. Size and the diversification of its business and loan portfolio was behind EFG Eurobank’s move to go for Ergasias Bank. Eurobank too succeeded in getting bigger but it took a few years before the computer systems of the two banks became fully compatible. National Bank of Greece, the country’s largest bank, had made its move even earlier in the decade by absorbing the National Mortgage Bank, the Housing Credit Bank and others. Piraeus Bank, Greece’s fifth largest bank, is also an offspring of that era. The fact that many small foreign banks sought to leave the Greek market for their own reasons, most notably because they could not reap the kind of profits from Greek capital market operations they did while the drachma was around, contributed to the consolidation process. Citibank and HSBC were the only ones to stay and expand in the promising retail banking sector where extensive branch networks were necessary to do the job. There is no doubt things have changed a lot since then. Greek banks have put their primary emphasis on retail banking and sought to expand their domestic branch networks to reap the benefits. At some point earlier this decade, another big foreign bank, that is, Societe Generale, made its way into the Greek retail banking market by buying a majority stake in medium-sized Geniki Bank. However, it was the failed merger between National Bank of Greece and Alpha Bank to create a national champion in 2003 which left its mark more than anything else. Suddenly, everybody realized that rigid labor laws and unresolved issues with the uncovered liabilities of the pension funds of bank employees were not the only obstacles in the way of intra-country bank mergers among the big players. The personal ambitions and the different agendas of some of the large shareholders and top executives of the large banks were also an obstacle. Although the failed merger between National Bank and Alpha Bank is a thing of the past, its lessons have not been forgotten by those who think five large banks may be too many even in a sector where concentration is relatively high by eurozone standards. Nevertheless, all the major actors have come to understand that it may not be in their power any longer to dictate the terms of the M&A game during an era where the free float of large banks has increased and size has become more important in attaining economies of scale and getting the attention of foreign funds. It is no secret that top Greek bankers were of the opinion that M&A among the large banking groups will come when earnings growth slows down. By expanding their franchises abroad in fast growing neighboring markets, they managed to extend the life of the earnings growth cycle. So, fast earnings growth abroad has started taking up the slack in the domestic retail banking market to some extent. Of course, the motives are not the same. For Takis Arapoglou, the chairman and CEO of National Bank who sees its acquisition of Turkish Finansbank as a success, it is not impossible to think that earnings from Turkey will constitute more than 50 percent of NBG’s consolidated profits five to 10 years down the road. So, combining with another large Greek bank would increase the capitalization of NBG to more than 30 billion euros from 20 billion plus now and boost the portion of earnings coming from the Greek market in group earnings. In addition, it would further dilute the equity stakes of state-owned pension funds and therefore reduce political influence at the bank. For the chairman and major shareholders of other big banks, such as Alpha Bank, which has a high free float and is therefore theoretically more vulnerable to a hostile bid, the options are different. Expanding operationally and proceeding with some acquisitions abroad to enhance shareholder value and increase capitalization is an option. Still, with a hostile bid a possibility, forming an alliance to have a white knight just in case is also a prudent move. According to the Greek press, NBG may be Alpha’s white knight when the time comes. This is a rational conclusion in an era where all big Greek banks are preparing for the next day. Eurobank EFG, itself the target of rumors of a possible link-up with a large foreign bank in the past, cannot but participate in the M&A game. Having a large and strong shareholder, the Latsis Group, Eurobank is more likely to be a hunter in the next round of consolidation in the Greek banking sector. Of course, Piraeus Bank, which like Alpha has a big free float but a more dynamic growth profile, will not abstain. As loan growth and earnings from the domestic retail sector slow down the question is not whether but when the next round of M&A will take place as size becomes a more important factor. In this game, where the hunters have already identified the targets, the question is who is going to shoot first. This will determine the new formation in the Greek banking sector.