ATHENS/LISBON Greece's Piraeus Bank (BOPr.AT) has clinched a deal with a Portuguese bank allowing Piraeus to meet fundraising targets and stay out of state hands.
Greece's second-largest bank has been under increasing pressure to raise funds from private sector investors as part of a rescue package backed by the government. Without the private sector injection, Piraeus would have ended up being nationalised.
Under the terms of the deal announced on Monday, Piraeus will buy the Greek business of Portuguese bank Millennium BCP (BCP.LS), while the Portuguese lender will buy 400 million euros ($523.3 million) of Pireaus shares.
The deal, which also reflects efforts to consolidate the Greek banking sector into a smaller number of stronger players, is the latest in a series of buys by Piraeus. And as in previous deals, it is effectively being paid by Millennium to take the latter's Greek business off its hands.
The nominal value of the deal, which sent Piraeus shares up 15 percent, is small, as Piraeus will pay just 1 million euros ($1.3 million) for the unit. But its broader significance lies in the fact that BCP will take part in Piraeus's recapitalisation.
The deal will also improve the solvency ratio at Portugal's largest listed bank, by diminishing its risky assets, alleviating concerns about the need for extra capital in the bailed out country's financial sector.
Both Greece and Portugal are under international bailouts after being hit hard by the debt crisis. Greece's four major banks - also including National (NBGr.AT), Eurobank EFGr.AT and Alpha (ACBr.AT) - need 27.5 billion euros in fresh funds to restore their solvency ratios to levels required by the country's central bank after heavy losses from sovereign debt writedowns and impaired loans.
Piraeus also planned to raise up to 400 million euros through a private share placement and up to 6.94 billion from a rights issue to boost its capital base.
IMPROVED CAPITAL POSITION
Under the deal, BCP will take up Piraeus's private placement. Piraeus's announcement confirmed what bankers close to the deal had told Reuters on Friday.
Piraeus said the deal would improve its capital position and profitability, helping it more than cover a 10 percent private sector participation requirement in its upcoming rights issue to remain privately run.
"We believe we can achieve an even larger private sector participation in our capital increase," the bank's Chairman Michael Sallas said in a statement.
Piraeus, which was advised on the deal by Barclays, Deutsche Bank and Lazard Freres, said BCP will recapitalise the Greek unit with 400 million euros before the sale.
BCP, whose shares rose 4.2 percent, said the deal allows it to deconsolidate around 4 billion euros in risk-weighted assets, while the recapitalisation and Piraeus's private placement do not require it to commit any new cash.
BCP had already booked a 427 million euros provision for losses in its Greek arm, which covers the recapitalisation. The money for the Piraeus private issue will come from existing loans already granted by BCP to its unit.
"With this sale, Millennium BCP gets an immediate reinforcement to its core Tier 1 of up to 100 basis points, which benefits its shares," said Andre Rodrigues, an analyst at Caixa Banco de Investimento.
The extra 100 bps would lift BCP's core Tier 1 ratio to around 10.8 percent under European Banking Authority criteria, well above EBA's minimum requirement of 9 percent.
The improvement comes after ratings agency Moody's warned earlier this month that Portuguese banks may need an extra 8 billion euros in capital. The Portuguese Banking Association denied any such need and said the banks were well-capitalised.
Piraeus has already struck deals to buy the Greek branches of Cyprus's troubled banks and Societe Generale's (SOGN.PA) Greek unit Geniki Bank.
(Reporting by George Georgiopoulos in Athens, with Sergio Goncalves and Andrei Khalip in Lisbon; Editing by Louise Heavens and David Holmes)