Greece's Alpha Bank freezes Eurobank merger over debt swap

ATHENS: Greece's Alpha Bank froze merger talks with Eurobank on Monday, pending the conclusion of tough negotiations between the government and private creditors on a huge sovereign debt write-down.

The bank said in a statement it intends to await the finalisation of terms of the debt write-down, then will ask shareholders to decide on the course of action.

The bank added that the attempted bond swap, designed to erase around 100 billion euros ($132 billion) from Greek debt held by private creditors globally, was expected to affect it and Eurobank in a "disproportionate" manner.

Last year, Alpha Bank posted a nine-month net loss of 567 million euros ($747 million) after writing off 608 million euros ($803 million) in Greek sovereign debt.

Over the same period, Eurobank lost 575 million euros (760 million) after setting aside 830 million euros ($1.06 billion) for Greek debt risk.

Alpha Bank noted the intended merger approved by its own and Eurobank's shareholder meetings in November had been premised on a milder debt write-down agreed by the eurozone in July that called on banks to accept a 21-percent loss.

A follow-up agreement in October increased the write-down to 50 percent in order to make Greek repayments more sustainable.

For its part, Eurobank said it was working to complete the merger as soon as possible.

"There are no reasons to delay the completion of the merger," it said in a statement.

Eurobank added that senior executives from both banks were privy to the debt rollover talks between the Greek government and its creditors.

"The basic terms and framework of the (bond swap) as decided at the October (EU) summit were already known at the time of the general meetings that approved the merger by over 97 percent," Eurobank said.

The merger plan, originally slated for completion in December, was designed to create Greece's largest lender with major backing from a Qatari investment fund.

The Athens stock exchange earlier on Monday ordered a temporary suspension of trade in Alpha Bank and Eurobank shares on uncertainty over whether the planned merger can be completed.

At the midday suspension, Alpha shares were up 9.4 percent while Eurobank was down 0.25 percent.

The stock exchange said it would lift the suspension on Tuesday.

Alpha Bank on Monday said it could not inform investors when the deal would be sealed, with negotiations between Greece and the International Institute of Finance, a global bank lobby group, ongoing from November.

"As soon as definitive facts emerge, the bank will duly update its disclosure," it said.

Announced in August and approved by the banks' respective boards in November, the merger aims to restore faith in Greece's cash-starved banking system amid rising concern about its exposure to the country's sovereign debt.

A capital increase of 3.9 billion euros ($5.2 billion), backed by Qatari fund Paramount Services Holding, was to be carried out in coming months as part of the merger deal.

Greek banks stand to lose heavily as a result of the government debt write-down that is part of the second eurozone bailout agreed for Athens in October.

The sum of 30 billion euros ($40 billion) from that 130-billion-euro ($171 billion) package is to be set aside to help recapitalise Greek banks.

French investment bank Natixis has estimated Greece's main four banks -- National Bank, Eurobank, Alpha and Piraeus Bank -- would need around 8.9 billion euros ($11.7 billion) to keep their capital ratio at the required nine percent if the write-down goes through.

An audit on the Greek banking sector by international risk analyst BlackRock Solutions, delivered to the Bank of Greece earlier this month, has not been made public.

The Greek finance ministry on Monday insisted the debt write-down will actually strengthen domestic lenders by "fully safeguarding their capital adequacy."

Copyright AFP (Agence France-Presse), 2011