Greek banks planning merge and raise funds

Alpha Bank and Eurobank, hit by heavy losses, said yesterday they will merge to form Greece’s largest lender, backed by fresh cash to restore faith in the debt-hit country’s cash-starved banking system.

Trying to stay afloat as the economy shrinks, Greek banks are heavily exposed to their own government’s bonds and Alpha Bank accordingly took a charge of €539 million to post a first half net loss of 525 million euros.

Eurobank, which failed a European bank stress test this year, had a loss of €588 million, highlighting the need for the new entity’s €3.9 billion capital increase which will be led by a Qatari fund.

“The boards of directors of Alpha Bank and Eurobank EFP announce that they have reached agreement on a combination of Alpha Bank and Eurobank EFG,” the banks said in a joint statement.

“We are announcing a marriage today, it creates the biggest bank in Greece,” said Alpha Bank chairman Yannis Costopoulos, who will head Alpha Eurobank.

Greek stocks soared nearly 15 per cent on the day, led by the banking sector as investors welcomed a rare bit of good news after Athens had to seek a second international debt bailout in July.

Trading of Alpha Bank and Eurobank shares was temporarily suspended.

After a five-for-seven share swap, Alpha Bank shareholders will hold 57.5 per cent of the new lender and Eurobank shareholders 42.5 per cent.

The capital increase will be undertaken by the three major shareholders involved – the two Greek families in each bank and Qatar’s Paramount Services Holding Ltd, which will end up controlling 17 per cent of the new lender.

“This is the first major investment in Greece for years and a vote of confidence for the country. We believe it will bring more,” said Mr Costopoulos.

Finance Minister Evangelos Venizelos hailed the merger as a “positive development which attests to the dynamism and perspectives of the Greek banking system.

“It is also important that Qatar participates and invests in Greece, sending a message abroad of confidence” in the troubled eurozone member’s economy, the minister said in a statement.

The deteriorating state of Greek public finances has cast a pall on the country’s banking sector which has significant exposure to state debt which as their results showed yesterday, can cost them dear.

Eurobank CEO Nicholas Nanopoulos noted that over €50 billion in deposits has left Greece in the past year.

Greek banks have seen their market valuation nearly halve since the start of 2011, helping send the Athens stock exchange to a 15-year low.