Merger and acquisition activity is heating up in Greece, with surprise takeover bids, religious opposition and major privatisation. investigates.

The launch in January of two takeover bids by Marfin Popular Bank, the Cyprus-based bank controlled by Greece’s Marfin group, surprised market watchers in both countries, especially as the prime target was Piraeus Bank, the fifth largest Greek bank by assets, which itself had been considering an acquisition in Cyprus.

Piraeus chairman Michalis Sallas counter-attacked as soon as he was told of the bid by Andreas Vgenopoulos, his Marfin counterpart. Piraeus made an all-paper offer for Marfin Popular at a 45% discount to its market price.

Because the Piraeus bid arrived first at the offices of the Cyprus stock exchange commission, Marfin Popular’s all-paper offer for its Greek rival, without any premium, was placed on hold. At the same time, Marfin Popular made another premium-less all-paper offer, this time for Bank of Cyprus (BoC), the island’s largest lender, in which the Cyprus Orthodox church is an influential shareholder with a stake of 5%.

Strong reaction

Greek-Cypriot officials and small investors reacted strongly. The Archbishop of Cyprus opposed the bid, while the government voiced concern about fair competition on grounds that if its bid were accepted, Marfin Popular would control more than 45% of assets in the Greek Cypriot bank sector.

Piraeus’s bid valued Marfin at €3.5bn while Marfin Popular’s bids put Piraeus at €6.8bn and BoC at €6.1bn. “Our bid made clear Marfin’s business value to us. We are double their size in assets and branches,” says Piraeus vice-chairman Michael Colakides.

After two months of much-publicised legal bickering, hostilities were declared over. All three bids were withdrawn. Marfin and Piraeus agreed not to make bids for each for at least three years. And Piraeus agreed to sell Marfin Popular its 8.2% stake in BoC for €500m following a collapse of its merger negotiations with the Greek-Cypriot lender. The deal effectively prevents another bank from acquiring BoC and putting competitive pressure on Marfin Popular.

Efthimios Bouloutas, Marfin Popular’s Greece-based managing director, says: “Our intention was to make a public tender offer for both banks on a friendly basis, on the grounds that the Greek mid-cap sector has terrific synergies. But at this stage, organic growth will be the main driver going forward.”

BoC, which has built a 4% share of the Greek loan market to become the most successful foreign bank in Greece, says it can grow without a strategic partnership. Its next move will be to launch a Moscow-based branch network to serve Cyprus-based companies in Russia.

Greece’s three top-tier banks are focused on fast-track growth in south-east Europe. Bolt-on acquisitions at home or in Cyprus are not currently part of their strategies. But as the aborted takeover battle indicates, medium-sized Greek lenders are jostling for position.

Marfin Popular, the seventh largest Greek bank, has deep pockets. Founded in 1998 as an investment vehicle for Greek shipowners, the Marfin group moved into retail banking three years ago with the purchase of a Piraeus Bank subsidiary. Marfin Popular’s biggest shareholder is Dubai Financial, the Gulf state’s investment arm, with a 17% stake.

Merger in pipeline

By mid-year Marfin Popular is due to complete a four-way merger involving two small Greek concerns, Athens-based Marfin Bank and Thessaloniki-based Egnatia Bank, as well as Popular Bank of Cyprus, the island’s second biggest bank, and its fast-growing Greek subsidiary.

The merged entity, headquartered in Cyprus, will be rebranded as Marfin Popular-Egnatia Bank later this year. It will have more than €2.5bn of assets, a network of more than 300 branches and a presence in 12 countries, mainly in south-east Europe and the eastern Mediterranean.

With a capital adequacy ratio of 17%, Marfin Popular has plenty of cash available for further acquisitions. Outside Greece, it controls small banks in Estonia and Serbia. In March, the group agreed to pay $137.4m for Ukraine’s Marine Transport Bank, a regional lender based near Odessa.

Marfin Investment, the bank’s private equity subsidiary, will next month launch a €5.2bn capital increase, the largest to date on the Athens stock exchange. Dubai Financial is committed to covering at least €500m.

Having waived its rights, Marfin Popular will control just 5% of the enlarged entity. It will nonetheless have a potential partner in Marfin Investment, which is expected to focus on financial sector investments, including bank acquisitions. Mr Bouloutas says: “We’re considering acquiring a small bank in Russia to serve clients with business in Cyprus, and setting up a greenfield operation in Bulgaria.”

Having walked away with a capital gain of €170m from the sale of its stake in BoC, Piraeus is no longer seeking a strategic partnership, Mr Colakides says. An acquisition in Ukraine is the next step, to keep up with Greek and international competitors. “We’re looking at a small bank based in Kiev with a widespread network, we’ll then focus on organic growth in markets where we’re already operating,” he says. “We’ll also look at small Balkan markets such as Montenegro, Kosovo and Macedonia.”

Huge investment

The confrontation between Marfin and Piraeus has overshadowed last year’s €2bn acquisition of 70% of Emporiki Bank by France’s Crédit Agricole SA (CASA), Greece’s largest bank privatisation to date and the biggest single foreign investment in more than a decade.

The French lender was the finance ministry’s preferred bidder because it was prepared to put down cash for the state’s 11% stake in Emporiki, plus another 21.4% held by state-controlled pension funds. It also helped that the government was keen to see a big foreign player join the Greek market. When BoC came up with an unexpected cash-and-shares offer, CASA upped its offer from €23.20 to €25 per share, valuing the bank at €

Emporiki, the fifth largest Greek bank with a 13% share of assets, had languished under state control and ran high levels of non-performing debt. Greek banks were wary of bidding for Emporiki because of concerns about asset quality as well as its rigid cost base and strongly unionised workforce. At 62%, its cost to income ratio is the highest among Greek banks.

CASA knew Emporiki, having set up profitable joint ventures in bancassurance and leasing after buying a 9% financial stake under the previous Socialist government. At 2.35 times book value, the acquisition price was much lower than the current average of 3 to 3.5 times book for the region.

Restructuring Emporiki will take time. Last year, the group posted losses of €235m following extra provisions to bring the Greek lender in line with CASA’s risk management practices, as well as one-off operational expenses and tax charges. Total provisions of €539m included u383m for a one-off impairment adjustment on loans.

Meanwhile, Société Générale, the first foreign bank to acquire a state-controlled Greek lender, is struggling to turn around Geniki Bank, the former paymaster for the Greek armed forces. The French group, which has a clutch of profitable operations in the Balkans, paid €36m for a 22% stake in Geniki and fully covered an €89m capital increase to bring its stake to 60%.

Four years later, Geniki is still in the red, despite a second capital injection of €200m and a management overhaul. Losses last year were €78.7m after increased provisions for bad loans. Another capital increase is needed to lift the capital adequacy ratio above the Greek central bank’s recommended level of 9%.

Attica Bank, expected to be the next state bank on the market, will be better prepared for privatisation. A small lender with a market cap of about €400m, Attiki is about to launch a €150m capital increase that will raise its capital adequacy ratio to 12%. Provisions have been raised to €120m. Full year after-tax profits reached €2.1m against losses of €7.9m in 2005.

About 38% of Attica would be up for sale, consisting of two 19% stakes held by the state-controlled Postal Savings Bank and the Loans and Consignments Fund. The bank’s main shareholder is Tsmede, the Greek engineers’ pension fund, with 42%.

Lending on the up

Lending is growing at about 25% annually following a balance sheet clean-up, against an average of 17% last year for the sector, says Tryphon Kollintzas, chairman and chief executive. With business lending accounting for two-thirds of lending, Attica has a 2% share of Greece’s corporate loan market, but less than 1% of mortgage and consumer lending. “As a niche bank that specialises in lending to the construction industry and to small companies, we’re well placed to grow. The construction industry, especially the second home segment, still has strong potential for growth,” Mr Kollintzas says.

New IT systems, merit-based promotion and high-quality relationship banking that attracts customers away from the big banks have driven Attica’s turn-around, he says. Attica is also considering acquiring a small bank in Ukraine to enhance the group’s value and test its restructuring model in a different market. “We’d like to replicate what we’ve done here at a small bank in the regional market,” says Mr Kollintzas.

Postal Savings Bank, which was listed last year on the Athens stock exchange, may also be on the block following a secondary offering later this year. With assets of €11.5bn and a loan to deposit rate of just 40%, PSB is seen as an attractive target. Full-year net profits were up 12% at €137.4m.


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