Greece's third-largest lender Alpha Bank has turned down an all-share offer by market leader National Bank of Greece, despite government calls for sector consolidation.
NBG took the market by surprise last week with its proposal to form a national champion with a market value of 9.7 bln euros that would rank among the 30 largest banks in Europe.
Alpha said the unsolicited offer was not beneficial to its shareholders, possibly opening the way for a takeover battle.
However, several scenarios could be played out in the near future, one of which could be the two cash-rich Cypriot banks embarking on expansion plans of their own.
Marfin Popular Bank’s CEO Efthymios Bouloutas told a news briefing last week that following a successful rights issue that raised EUR 488 mln, mostly from foreign investors, the bank would turn to Russia and Cyprus for its biggest profits in 2011.
“We will use those funds for organic growth in south eastern Europe,” Bouloutas said, not discounting opportunities that might arise elsewhere.
He added that the recent sell-off of their banking assets in Australia to Bank of Beirut for nearly 104 mln euros, made Marfin Popular’s cash position even stronger.
Marfin had also tried to bid for the takeover of Piraeus Bank in 2007, while Bank of Cyprus is aggressively expanding in the Russian market through its recent acquisition of local lender Uniastrum.
Following Alpha Bank’s rejection, NBG has several options it can choose from.
In the first scenario, NBG would stick to its 8-for-11 share offer which values Alpha at 2.95 billion euros, insisting that it has compelling merits and big synergies. But analysts do not rule out the possibility of a sweeter offer down the line, which could bend Alpha's resistance.
To succeed, the deal would also need regulatory and NBG shareholder clearance as it could raise potential anti-trust issues. The combined bank would have a 35 to 40% market share in mortgages and deposits.
A bigger entity would have improved capacity to raise funds in equity markets and open the spigots of the interbank market. Greek banks, weighed down by government bonds, have been effectively shut out of wholesale funding during the country's debt crisis and depend on the European Central Bank.
ALPHA YIELDS?
Greece's socialist government has strongly encouraged banks to pursue tie-ups to better cope with the crisis and help the economy turn around. Some officials slammed Alpha for turning down the deal and the government is expected to exert pressure to keep negotiations going.
The state holds 940 mln euros of preferred shares in Alpha bank under a liquidity support scheme, which gives it some powers of veto over policy.
Alpha cited concerns over NBG's relatively bigger exposure to government paper and said the offer was not a fair reflection of its real value in a depressed market.
But analysts said objections may also come from management over positions in the new bank, an issue that scuppered an agreed merger deal between the two in 2001.
FOREIGN BUYER
Analysts say it is unlikely that a foreign bank will get involved as long as the shadow of Greek debt restructuring persists. Markets fear that, despite Greek fiscal efforts, some sort of debt relief will be needed down the road, with haircuts for Greek bonds. It would be hard for a foreign player to convince its shareholders of the merits of spending billions on a Greek bank. In-market consolidation with paper deals is widely seen as the more likely path.
"You can buy a small Italian bank at 0.5 times book value," one analyst said.
CONSOLIDATION
Even if the deal flops, analysts say the bid has set the ball rolling for Greek banking consolidation. Second-largest lender EFG Eurobank has recently sold its stake in a Polish unit and could be weighing a move, possibly with state-owned Hellenic Post Bank (TT), in which it owns about 10%.
Piraeus Bank, which has already made an offer for ATEBank and TT but later withdrew it, is expected to seek partnerships. Meanwhile Cypriot lenders Marfin Popular and Bank of Cyprus may not stay on the sidelines if others make a move.
Piraeus chairman Michael Sallas said on Monday a merger between NBG and Alpha would benefit the sector.
"If the two sides work it out, it would be a positive development for the Greek banking sector and the economy in general," Sallas told Reuters. Piraeus ranks fourth by market capitalisation.
MUST BE FRIENDLY
Meanwhile, the head of Greece's central bank said on Tuesday he favoured bank mergers in the debt-laden country, provided they were well planned and not hostile.
George Provopoulos, an ECB governing council member, also said the European Central Bank is in the process of gradually winding down extraordinary liquidity measures.
"As conditions in the euro zone normalise the tendency to exit extraordinary liquidity measures increases," Provopoulos told the Greek parliament's economic affairs committee.
"The ECB is in a phase of exiting extraordinary liquidity measures… Of course this will be gradual," he added.
Greek banks are heavily reliant on European Central Bank funding for liquidity, as access to wholesale funding remains mostly shut because of wider sovereign debt concerns.
