ATHENS Greece's Alpha (ACBr.AT) and EFG Eurobank EFGr.AT on Monday sealed a mega merger, with the help of Qatar, that is expected to trigger more deals to shore up banks battered by a severe debt crisis and recession.
Alpha and Eurobank shares shot up by 30 percent as soon as the bourse lifted a trading suspension after their boards rubber-stamped the deal to form the largest bank in southeast Europe, aided by a capital injection from the Qatar Investment Authority.
The Greek central bank chief and the finance minister welcomed the tie-up as a watershed for Greek banking, saying the participation of a strong foreign investor was a boost to the banking system and the whole economy.
"This initiative shows that today's crisis can be an opportunity for structural moves that boost both the financial sector and the real economy," Finance Minister Evangelos Venizelos said in a statement. "Qatar's participation sends an international message of confidence in the prospects of the Greek economy."
The deal comes as European Unions and International Monetary Fund inspectors begin a visit to examine the country's performance against conditions set for its rescue by the international community.
In Athens the banking sector index .FTATBNK rallied 29.4 percent mid-day on Monday, as details of the deal emerged. European bank shares .SX7P were up 0.8 percent with the Paris CAC 40 index .FCHI gaining 1.3 percent.
MORE MERGERS ON HORIZON
Troubled by deposit outflows, sovereign debt downgrades and rising loan impairments with the economy in its third straight year of recession, Greek banks had been urged to explore tie-ups in hopes of regaining access to wholesale funding markets.
A worsening liquidity squeeze and fears that a thorough audit of their loan books by BlackRock would reveal the need for higher provisions have pummeled their shares. Investors worried that recapitalization needs would force banks to turn to the Financial Stability Fund (FSF), a national capital support safety net.
Such action would significantly dilute current shareholder ownership, placing banks in state hands.
"The biggest incentive for the two banks to merge is to avoid nationalization," said a bank analyst who did not want to be named. "It will be the starting signal for M&A in Greece. The other banks will have to react, particularly Piraeus which is the smallest of the four big Greek banks."
The Alpha-Eurobank deal will topple National Bank (NBG) (NBGr.AT) from its current top position in Greek banking. NBG had unsuccessfully courted Alpha earlier in the year.
Piraeus Bank on Monday welcomed the deal but said it was currently not in merger talks with any other bank.
Alpha and Eurobank are to merge via an all-share swap with a 1.25 billion euro rights issue set to follow along with a 500 million euro convertible bond to be covered by Qatar. The share swap ratio will be 7 Eurobank shares for every 5 Alpha Bank shares, the banks said.
"The markets were worried that all was going to hell. This will show them that something is happening in this country," Alpha Bank's Chairman Yannis Costopoulos, who will chair the new entity's board, told a news conference.
The combined group projects annual synergies of 650 million euros. Executives said the new bank, named Alpha Eurobank, would not pull out of southeast Europe and the overall capital plan would ensure core Tier 1 ratio of 14 percent.
The management team will be led by two CEO's, Alpha's Dimitris Mantzounis and Eurobank's Nicholas Nanopoulous.
(Writing by Dina Kyriakidou; additional reporting by Harry Papachristou and Angeliki Koutantou)