Piraeus Bank announced on October 19 it signed a definitive agreement with Societe Generale (SocGen) for the acquisition of the latter’s entire stake (99.1%) in its Greek unit, Geniki Bank. The transaction is expected to be consummated before the end of the year and is subject to final regulatory approvals.

This is the fourth M&A transaction in the Greek banking market over the past three months. It is reminded that the last round of domestic banking consolidation was inaugurated by Piraeus Bank acquiring the sound part of ATEbank in late July. At that time, few had thought that development was not an exceptional case, but it was actually the first in a series of upcoming M&A transactions: In early October National Bank announced a tender offer to Eurobank shareholders creating the largest (by far) Greek banking group. A couple of weeks later on October 17, Alpha Bank announced it had entered into a contract with Credit Agricole for the acquisition of its Greek subsidiary, Emporiki Bank. Recent bank M&A resulted in the reduction of the number of large banks by one (Eurobank) and the containment of mid-sized banks by three (ATEbank, Emporiki and Geniki).

According to the terms of the transaction, Piraeus capital base is enhanced by €544m, stemming from a €281m capital advance to Geniki by SocGen (as determined by BoG), subscription by SocGen to a bond issued by Piraeus for an amount of €163m plus Geniki’s equity of €100m (at the end of March ’12). The positive impact on Piraeus (pro-forma) Q1’12 capital adequacy ratio is a 1.2pp improvement on the 9% reported by Piraeus standalone last May (incl. the HFSF capital advance of €4.7bn received in May).

Similarly to the acquisition of Emporiki Bank by Alpha Bank, it is clear that Geniki acquisition is also a capital accretive transaction for Piraeus, since a prerequisite set by BoG for both French banks’ Greek units was their full recapitalisation prior to their disposal.  Note that Emporiki pro-forma Q1’12 EBA core Tier I ratio stood at 19%, while Geniki’s respective ratio, although not yet disclosed, is most likely at similar high levels.

The aggregate consideration cost for the acquisition of Geniki and SocGen’s receivables corresponding to the capital advances was agreed at the symbolic amount of €1m. Note also that Alpha Bank paid just €1 for the acquisition of Emporiki. My take is that the decision of Credit Agricole and SocGen to dispose their Greek units was purely a delayed exit strategy, combined with a stop-loss, from two constantly loss-making subsidiaries, which turned out as two of the most unsuccessful investments in Greece from the first year. Just to remind that Geniki became part of SocGen group in 2004 and Emporiki a subsidiary of Credit Agricole in 2006 with both banks having recorded bottom-line losses in almost all years since then.

Following this transaction, along with the previously announced acquisition of ATEbank, Piraeus becomes the third largest Greek banking group, following the combined National-Eurobank and Alpha-Emporiki groups, with assets of €77bn (National: €177.7bn, Alpha: €77.6bn), net loans of €46bn (National: €109.2bn, Alpha: €61.1bn) and deposits of €37bn (National: €89.0bn, Alpha: €39.2bn). The aforementioned figures correspond to a market share of 20% in deposits and 17% in loans in the Greek banking market.

Among the key BS ratios of the combined group, it is highlighted that loan-to-deposit ratio remains unchanged at 124% (following the previously significant improvement due to ATEbank acquisition), while cumulative provisions (as % of gross loans) increases to 9.5% (from 7.4% previously), resulting also to an increase of NPL coverage to 60% (from 56% before).

Piraeus Bank said it estimates the new entity will benefit from pre-tax synergies of €50bn pa, totalling to €244bn pa incl. ATEbank, on a run-rate basis post a 3-year period, while one should also take into account the – yet undisclosed – (one-off) merger and integration costs also considering branch restructuring.

As we had commented on the previous three M&A transactions, 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 needs as well as the implementation of the recap process. All these top-priority – yet still pending – developments, have been delayed due to the ongoing discussions of Greek government 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.