Greek Finance Minister Evangleos Venizelos upped the pressure on banks last week when he said a $14-billion fund was being set up to capitalize lenders by purchasing bank shares.JOHN KOLESIDIS
It is the first piece of promising financial news to come out of this debt-wracked nation in years, and while widely anticipated, markets have rebounded with record rallies. Athens-based Eurobank EFG and Alpha Bank on Monday announced plans to merge, creating the biggest financial institution in Greece; among the largest in the Balkans. Shares by both banks were suspended ahead of the mid-day announcement, causing other stocks to surge nearly 20 per cent.
Why such euphoria? Under the deal, the tie-up -- backed by a $725-million stake from a Qatari investment fund -- allows the two lenders to privately recapitalize their banks rather than tapping into a state liquidity support mechanism that would have effectively spelled their nationalization. As one investment banker put it, "Both owners opted to keep their banks from state hands. It's all about survival."
Well in the throes of its worst recession in decades, Greece has been teetering on the brink of bankruptcy despite $315-billion in bailouts cast by international lenders over the past two years. Locked out of international markets and battered by multiple credit downgrades plus massive deposit outflows and non-performing loans, Greek banks have increasingly come to resemble U.S. lending institutions at the height of the subprime mortgage crisis -- the first indicator of the late-2000s financial crisis.
Fearful of the fallouts, leading government officials here, including Greece's canny new finance minister Evangleos Venizelos, have repeatedly pushed banks to consolidate. All rejected the calls -- including Alpha Bank, which in February snubbed an offer by Greece's biggest lender, National Bank, to merge.
Last week, though, and as banks share prices continued to plummet, Mr. Venizelos upped the pressure saying a $14-billion fund was being set up to capitalize lenders by purchasing bank shares. The move, analysts say, was enough to spark fears of further outflows of deposits -- and losses -- for Greece's struggling private banks. "There can be no recovery of the Greek financial crisis without the recapitalization of the banking system," quipped a senior banker who requested anonymity. "It's like the blood that circulates the human body. If it's poisoned or not enough, then you're faced with a dying patient."
So will more mergers follow? The Athens government hopes so. But so too does the European Central Bank, which has been funding Greece's strapped lenders with as much as €103-billionsince the start of the crisis. Earlier this year, BlackRock Solutions, a specialist risk analyst, was called in by central bank to audit delinquent loans held by Greek banks. Its findings are due later this year. "The pressure is on," said a senior investment banker. "If you've been fudging your books, wouldn't you want to double up and start off with a clean slate before your bank books are revealed?"