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From the FT's Lex blog

One thing can be said in favour of Greek banks. Despite the economic slump they are still standing (unlike, say, most of their Irish counterparts).

Proof of life, however, cannot conceal the pain wrought by the crisis -- lack of capital and liquidity, and reliance on the European Central Bank.

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So as the good ship Greece sails towards the iceberg, some passengers have made their own lifeboats. The proposed merger of 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 €1.7-billlion -- can pull off a €1.25-billion rights issue, this particular lifeboat might even float, especially as the merged bank is to get a €500-million 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.

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 capitalized. 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 €650-million over three years. The €350-million 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 €210-million 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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