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Greek Banks Pressured to Merge as Economic Slump Hurts Profits August 24, 2010

Posted by Yilan in Yunanistan.
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Greek banks are under growing political pressure to merge as second-quarter earnings probably slumped on rising loan losses and worsening asset quality in the debt-burdened country.

National Bank of Greece SA, EFG Eurobank Ergasias SA, Alpha Bank SA and Piraeus Bank SA, which will report results within the next week, have been called upon to consider partnerships by Greek Finance Minister George Papaconstantinou and Bank of Greece Governor George Provopoulos. Profits at the lenders probably fell more than 60 percent, according to analysts’ estimates.

Merger speculation has increased after Piraeus offered last month to buy the state’s holdings in Agricultural Bank of Greece SA, the only one of the country’s banks to fail the European Union’s stress tests, and Hellenic Postbank SA. Mergers may help banks cut costs, strengthen balance sheets and provide better access to capital markets and funding opportunities after they probably posted an increase in loan losses and non-performing loans as well as deposit outflows.

While consolidation “does not solve the liquidity, bad debt and sovereign problems of Greek banks,” it may help reduce competition for deposits and drive cost savings, said Pawel Uszko, an analyst at Macquarie Research in London. “So consolidation would be, on balance, beneficial.”

National Bank, Greece’s largest lender, has gained 16 percent since the end of June amid merger speculation and after passing the EU stress test. Eurobank has advanced 44 percent, while Alpha and Piraeus have risen 37 percent and 26 percent, respectively.

Budget Deficit

Foreign banks are unlikely to buy Greek banks at the moment because of the “uncertain sovereign backdrop and earnings pressures,” Uszko said. “Mergers between big players are more likely, but only to the extent the price is right.”

Greece’s government aims to reduce the budget deficit from 13.6 percent of gross domestic product last year, the second- largest gap in the EU after Ireland, to within the EU limit of 3 percent in 2014. The economic crisis has led to soaring funding costs for Greece and a slump in the value of government debt, some of which is held by the country’s banks.

National Bank will probably say second-quarter net income fell 72 percent to 109.7 million euros from a year earlier, according to the average estimate of nine analysts surveyed by Bloomberg. EFG Eurobank’s profit may have declined 65 percent to 30.7 million euros, while Alpha’s net income probably dropped 74 percent to 33.3 million euros. Piraeus may report a 17.6 million-euro loss, compared with a 77 million-euro profit.

ECB Funding

The country’s lenders have largely been cut off from the money markets, forcing them to rely on funding from the European Central Bank at a time when deposit outflows from their domestic units have reduced their traditional funding base.

The banks’ dependence on the ECB for funding and the worsening asset quality is likely to lead to mergers and capital injections, Alexander Kyrtsis, an analyst at UBS AG in London, wrote in a report this month.

“They will help create bigger financial institutions with more robust balance sheets,” the analyst said. “The resulting entities should have better access to capital markets, deliver synergies and should ultimately be significantly better placed to compete in central and south-eastern Europe.”

Non-performing loans rose to 8.2 percent of all outstanding loans in Greece in the first quarter of 2010, from 7.7 percent at the end of last year, according to HSBC Holdings Plc.

Pressure on net interest margins, rising loan loss provisions and domestic deposit outflows probably hurt profit at Greek banks in the second quarter, said Tania Gold, an analyst at UniCredit SpA in London, which has “sell” recommendations on the country’s four largest banks.

‘Remains Under Pressure’

“We forecast the cost of risk at each bank to continue rising as Greece’s economy remains under pressure,” Gold said, citing a contraction in second-quarter GDP of 3.5 percent from the year-earlier period.

Piraeus is the first major Greek bank to report second- quarter earnings on Aug. 26, followed by National Bank the next day. Eurobank is due to release its earnings on Aug. 30, while Alpha plans to publish its quarterly figures Aug. 31.

Following are the analysts’ estimates, in millions of euros. The brokerages providing estimates included Alpha, ATE Securities, CA Cheuvreux, Euroxx Securities, Macquarie, Natixis SA, Piraeus, Proton Bank and UniCredit.

National Bank (nine analysts):
                          Q2 2009       Q2 2010    High     Low
                         Reported     Avg. Est.

Net Interest Income         968       1,029.8     1,045   1,009
Fee, Commission Income      175         165.3       177     161
Trading, Other Income       225        -111.4      -123    -100
Total Revenue             1,394       1,111       1,150   1,055
Operating Costs            -607        -624.2      -642    -604
Loan Impairments           -261        -328.4      -338    -319
Net Income                  391         109.7       126      86

EFG Eurobank (seven analysts):
                          Q2 2009       Q2 2010    High     Low
                         Reported     Avg. Est.

Net Interest Income         590         566.1       575    560
Fee, Commission Income      102         109.3       128    104
Trading, Other Income        17          39.6        54     20
Total Revenue               751         737.8       747    727.5
Operating Costs            -363        -351.9      -354   -349
Loan Impairments           -287        -346.7      -356   -332
Net Income                   88          30.7        44     19

Alpha (five analysts):
                          Q2 2009       Q2 2010    High     Low
                         Reported     Avg. Est.

Net Interest Income         442         453.3       456.8   447
Fee, Commission Income       98          82.3        85.4    80
Trading, Other Income        89          19          22      14
Total Revenue               629         555.2       560.9   548
Operating Costs            -294        -295.1      -297.4  -294
Loan Impairments           -169        -215.6      -220    -205
Net Income                  128          33.3       39       30

Piraeus (eight analysts):
                          Q2 2009       Q2 2010    High     Low
                         Reported     Avg. Est.

Net Interest Income         272         290.2       298    280
Fee, Commission Income       51          48.4        51     46.8
Trading, Other Income       110          19.6        30      3
Total Revenue               433         361.6       372    341
Operating Costs            -217        -216.3      -220   -212
Loan Impairments           -126        -105.3      -143   -135
Net Income                   77         -17.6       -24.9  -15

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