Greece’s second and third-largest banks, Eurobank and Alpha Bank, are set to announce a merger deal today to better cope with a severe sovereign debt crisis and recession, banking sources said on Saturday.
The expected deal, which would create the biggest bank in southeast Europe by assets, will help the two lenders avoid turning to the state liquidity support mechanism and is likely to spark more reshuffling in the country’s banking sector, analysts said.
“The boards of the two banks will sign the deal early today and the announcement and a press conference will take place at around midday,” a banking official close to the deal said.
Troubled by rating downgrades, deposit outflows and loan impairments in the wake of the country’s worst recession in four decades, Greek bank shares have tumbled more than 55 percent in the year to date.
“The deal is about a friendly merger between Alpha Bank and Eurobank, with the participation to a significant extent of the Qatar Investment Authority,” a senior banker at Alpha Bank said.
The new entity will have assets of 150 billion euros (US$211.3 billion), 8 million clients and 80 billion euros of deposits, said a third banking official, adding that the banks were very close to a deal.
The Qatar Investment Authority, which is already a shareholder in Alpha, will become a major shareholder in the new group, the officials said. Another banking official said the Gulf Arab state had signed the deal on Saturday.
Analysts welcomed news of the deal between Eurobank, which failed the latest EU-wide bank stress test and Alpha, saying it could help the two lenders weather the crisis.
“This is a strategic move in the right direction that will protect the two banks from the worst that is ahead for the Greek banking sector,” Beta Securities chief trader Takis Zamanis said.
“Qatar will probably inject money into the new entity at a time when Greek banks are facing lack of liquidity, losses from the PSI [private sector involvement in the bond swap] and rising loan impairments,” he said. “The two banks may avoid asking liquidity from the existing support mechanism.”
Investors have been concerned that writedowns from an upcoming bond swap aimed at saving Athens from bankruptcy and loan impairments could force Greek banks to re-capitalize and turn to the state for help.
Recourse to Greece’s Financial Stability Fund, a 10 billion euro safety net set aside to re-capitalize lenders that find it hard to raise funds in the market, would set banks up for restructuring.
The banking officials provided no detail of the Qatari fund’s involvement in the new group, but one said it would participate in the new entity through a rights issue.
“The merger, with Qatar’s participation, is a very positive move and keeps away the danger for the two banks to go to the support mechanism,” said Manos Hatzidakis, an analyst at Pegasus Securities. “It is positive because a new, bigger and stronger private group will be created in southeast Europe with a new shareholder.”
The deal may also help the new entity open up access to wholesale funding markets.
Greek banks have been shut out from the interbank market and are dependent on the European Central Bank (ECB) for liquidity, borrowing at its money market -operations by putting up Greek government bonds and other assets as collateral.