Alpha Bank announced earlier today it entered into a contract with Credit Agricole (CA) for the acquisition of 100% of its Greek unit, Emporiki Bank. Note that CA had announced on October 1 it had entered into exclusive negotiations, picking Alpha as the preferred bidder among the three Greek banks that had expressed interest for Emporiki acquisition. The closing of the transaction is expected within 2012.

The key rationale for this transaction was Emporiki excess capital, following a capital injection of €2.85bn by CA (€2.32bn in July and €0.53bn at closing of the transaction) bringing Emporiki pro-forma Q1’12 EBA core Tier I ratio at 19%. Taking into account that Alpha Bank’s standalone respective ratio stood at 7.9% (including the capital advance of €1.9bn from HFSF), the combined group enjoys a pro-forma Q1’12 EBA core Tier I ratio of 11.1%. Therefore, it is clear that the transaction is capital accretive for Alpha Bank reducing its capital shortfall ahead of the upcoming recapitalisation process.

The nominal consideration of the transaction stood at €1 in accordance with the terms and conditions set by HFSF, while the remaining funding by CA in Emporiki will be phased out over the next two years. Furthermore, CA will subscribe into a convertible bond of €150m to be issued by Alpha Bank. The combined entity will become the second largest Greek banking group with pro-forma assets of €77.6bn, net loans of €61.1bn and deposits of €39.2bn. It is also noteworthy that the new entity’s shareholders’ equity significantly improves to €4.1bn, from €0.7bn for Alpha standalone, with Emporiki contributing €3.4bn of capital.

Among the key BS ratios of the combined group, we highlight that loan-to-deposit ratio remains unchanged at 156%, while cumulative provisions (as % of gross loans) increases to 10.5% (from 6.5% Alpha standalone), due to Emporiki high NPL coverage of 58.3% compared to 43% for Alpha. Half of the new group’s loan portfolio in Greece (€60.2bn) is allocated in loans to the corporate sector, 30% in housing loans and the remaining is almost equally split between consumer loans and small business loans.

Alpha Bank said it estimates the new entity will create fully phased synergies of €200m pa with ¾ stemming from cost synergies and the remaining from funding and revenue synergies, while one should also take into account the – yet undisclosed – (one-off) merger and integration costs also considering branch restructuring. Cost synergies are equivalent to 12.4% of combined cost base.

This is the third M&A transaction in the Greek banking market over the past 3 months, following the acquisition of the sound part of ATEbank by Piraeus Bank in late July and the announced mega deal with National Bank acquiring Eurobank on October 5. Further M&A developments involve the upcoming potential acquisition of Geniki Bank (fully owned by Societe Generale) by Piraeus Bank, with the two banks announcing they have entered into exclusive negotiations, and the potential disposal of the Greek state’s stake (44%) in Hellenic Postbank.

Rumors as well as official announcements on M&A over the past 2-3 months had overshadowed the most important issue for the viability of Greek banks: the clarification of bank recapitalisation terms and the implementation of the recap process. The latter have been delayed due to the ongoing discussions of Greek government authorities with the troika on austerity and structural measures, a process which has consequently delayed the disbursement of the next tranche of €31.5bn, the bulk of which involves bank recap.