(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By George Hay
LONDON, Aug 31 (Reuters Breakingviews) - Piraeus Bank (BOPr.AT) must feel a bit jilted. The smallest of the four big Greek banks has just watched its most likely merger partners, Eurobank EFG EFGr.AT and Alpha Bank (ACBr.AT), head off into the sunset together. A consolation deal with National Bank of Greece (NBGr.AT), the biggest of the bunch, could work. But Piraeus may have to make significant concessions to make it happen.
Piraeus has the same problem as all its domestic peers -- a capital base that faces erosion following haircuts to its debt, and increasing reliance on weekly liquidity from the European Central Bank as the sovereign bonds it pledges as collateral get downgraded. But Piraeus is particularly vulnerable. Its usage of ECB liquidity is about 30 percent of total assets, more than its larger peers. Meanwhile, although the majority of Piraeus's Greek government debt should be more highly rated after the Greek bailout agreed on July 21, it still accounts for 13 percent of assets. That's a higher proportion than at Eurobank or Alpha.
NBG is hardly the ideal partner. It is 18 percent state-owned, and has the biggest single holding of Greek debt. Moreover, it’s not clear where an NBG-Piraeus combination might find a foreign investor to help pad out a capital buffer against future bailouts, as EFG and Alpha found in Qatar’s Paramount investment fund. But if a merger could secure synergies of 14 percent of the two banks’ combined cost bases -- as projected by Alpha and EFG -- the value creation alone could be 75 percent of NBG and Piraeus’s combined 4.3 billion euros market capitalisation.
The problem for Piraeus’s management is that it may have to show the same generosity Eurobank extended to Alpha to get NBG interested. Even though Eurobank’s 957 million euros market capitalisation on Aug. 26 was 48.5 percent of the combined EFG-Alpha equivalent, it wound up with only 42.5 percent of the enlarged group. And Alpha isn’t just getting a bigger share of the synergies, it is also providing the chairman and one of two co-chief executives.
Eurobank shareholders are still better off than without a deal -- but they are paying a high price for the privilege. The asymmetric terms reflect its weaker capital and higher Greek debt exposure. If Piraeus finds itself similarly pressured, it may have to bend over backwards as well. That might mean taking a negative premium and losing more of its management. Still, that’s better than risking nationalisation.
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-- Shares in Greek banks were lower in early trading on Aug. 31, having staged a rally earlier in the week after Eurobank EFG and Alpha Bank agreed a merger on Aug. 29.
-- Eurobank EFG shares fell 9.3 percent to 1.75 euros, Bank of Piraeus was 7.9 percent lower at 0.70 euros, and National Bank of Greece shares were down 4.75 percent to 3.22 euros. Alpha Bank shares fell 3.6 percent to 2.42 euros.
-- The central Bank of Greece has activated Emergency Liquidity Assistance (ELA) although it has yet to be used, Reuters reported on Aug. 25.
-- Piraeus saw its total deposits fall 11 percent to 26.4 billion euros between the end of June 2010 and the end of June 2011, the bank said on Aug. 31. Its core Tier 1 ratio, factoring in the effect of a 21 percent haircut in its holding of Greek government bonds, fell 25 basis points to 8.2 percent.
-- The bank made a net loss in the first half of 2011 of 820 million euros compared to a profit of 10 million euros in the first half of 2010, mainly due to a 1 billion euro impairment against its holdings of Greek government debt.
-- Reuters story: Alpha, EFG fire starting gun for Greek bank deals [ID:nLDE77S070]
-- Reuters story: Greek Piraeus Bank posts H1 loss on bond swap [ID:nLDE77U032]
-- For previous columns by the author, Reuters customers can -- For previous columns by the author, Reuters customers can click on [HAY/]
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