Proof of life, however, cannot conceal the pain wreaked by the crisis – lack
of capital and liquidity, and reliance on the European Central Bank.
So as the good ship Greece sails towards the iceberg, some passengers have
made their own lifeboats. The proposed mergerof Alpha Bank and EFG Eurobank
must be seen in that light. If the two banks – the second- and third-largest
Greek banks, with a combined market value of €1.7bn – can pull off a €1.25bn
rights issue, this particular lifeboat might even float, especially as the
merged bank is to get a €500m capital injection from a Qatari investor.
The merger is aimed at keeping the banks out of state hands (the only other
likely source of new capital). For that reason alone, it deserves to succeed.
Core problem
The merger is unlikely to solve the banks’ core problem – that neither can
access the wholesale market for funding by itself – since it is Greece,
rather than its banks explicitly, that has been shut out of the markets.
Combining, however, will allow a single bank to be better capitalised. The
merged bank has a target core tier one capital ratio of 14 per cent, to be
reached through a combination of the rights issue, the Qatari investment,
and internal measures.
The tougher issue will be to deliver on promised synergies of €650m over three
years. The €350m of pre-tax operating synergies look achievable – there is a
lot of overlap between Alpha Bank and Eurobank, including in their foreign
operations. But funding synergies of €210m appear unrealistic, given the
closure of the funding markets.
The merger promises more than it can realistically deliver, though Qatar’s
capital injection makes its completion more achievable. This deal will not
save Greece. But it might just save the two banks.
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