Second thoughts about the Alpha-Eurobank deal

All Greek banks are only a step away from the Financial Stability Fund, knowing that the announcement of the cut rate of the public debt will lead to recapitalizations that will be too heavy for the shareholders to bear

The banking market is expecting a haircut os Greek state bonds at not less than 50%, which will represent new capital commitments of at least 30 billion euros for the Greek financial system. Beyond these, new capital will be required to cover NPLs after the completion of the audit by Black Rock.  

It is clear that current shareholders will not be able to cover all losses resulting from the shearing of the bond. In accordance with the prescribed procedure, they will be asked to proceed to capital increases and the Fund will enter at a second stage, injecting extra funds that will be required so that the capital adequacy ratio of banks can reach 10%. Where necessary, the Fund will enter through the purchase of common shares, making it the main shareholder, which will drastically reduce the percentage of the existing shareholders. 

This development affects all banks that will resort to the Fund, while creating a number of questions on the course of the merger between Alpha Bank and Eurobank and the participation of Qatar which, according to the original plan, would participate in the new format through the issuance of a bond loan of 500, million thus acquiring control of 17% of the new bank. 

According to sources close to the administrations of the two banks, the preparation for the merger is going forth so that the legal aspect will be completed immediately after the last general meeting on November 5. 

However, questions remain. In the case of a 50% haircut, and regardless of whether the legal merger is complete or not, the appeal to the Fund is considered certain. Will Qatar participate in the new format, where the main shareholder is likely to be the Financial Stability Fund and not the current shareholders, ie the Kostopoulos and Latsis families? And if it does take part, will the terms be renegotiated, since the prices of shares on the ASE have collapsed? 

If the Emirate finally decides to participate, the most likely scenario is that it will have the FSF as a partner in the merged bank and not the current major shareholders of both banks, the rates of which will shrink dramatically, despite the fact of the prior recapitalization at 1,2 billion euros. 

Finally, old and new partners should plan ahead on moves that will allow them to recover the lost value of their investments. Otherwise, neither the merger will make any sense, nor the capital contribution in terms of capital increases that must come before entry to the Fund.