European Commission approves restructuring aid for Greek bank Alpha Bank

The European Commission has found the restructuring plan of the Greek Alpha Bank, including the acquisition and integration of Emporiki Bank, to be in line with EU state aid rules. The measures already implemented and those envisaged in the future will enable the bank to return to viability, while limiting the distortions of competition brought about by the state funding.

Commission Vice-President in charge of competition policy Joaquín Almunia said: “Alpha Bank’s restructuring will make a significant contribution to reinforcing the viability of the Greek banking sector, to the benefit of the Greek economy.”

Since 2008, Greece and the HFSF have granted repeated capital and liquidity support to Alpha Bank. The Commission opened an in-depth investigation in July 2012 (see IP/12/860). Greece has notified the restructuring plan of Alpha Bank in June 2014.

Alpha Bank has already started to implement significant restructuring and rationalisation measures. The restructuring plan continues this effort. It provides for a further downsizing of international operations and a reinforcement of Greek operations, mainly through a rationalisation of operating expenses, a reinforcement of the net interest income, the strengthening of the balance sheet and a strict risk monitoring. These commitments will be monitored by a trustee. They will help turning the company into a solid and viable bank that can contribute significantly to the sustainable financing of the Greek economy.

The Commission assessed the plan under its state aid rules for the restructuring of banks during the crisis (see IP/13/672 and MEMO/13/886). In its assessment, the Commission took into account the fact that the difficulties of Alpha Bank did not come from excessive risk-taking but primarily from the sovereign debt crisis and the related exceptionally protracted and deep recession which started in 2008.

In view of those exceptional circumstances, the aid is less distortive of competition and creates less moral hazard. The Commission therefore concluded that a relatively limited downsizing of Alpha Bank would be sufficient to limit distortions of competition and, in particular, requested no downsizing in the Greek lending activities.

Shareholders, through their participation in the successive capital increases, and subordinated debt holders, through the liability management exercises, have contributed significantly to reducing the amount of capital needs that had to be injected by the state. Moreover, shareholders have been almost completely diluted by the state. The bank’s stakeholders therefore contributed to the costs of restructuring to an appropriate level.

The refocusing of the bank’s activities on Greece, the deleveraging of foreign activities, the prohibition of any costly acquisition and enhanced risk monitoring ensure that the aid is strictly used to restore the bank’s viability and that distortions of competition remain limited to the minimum.

Acquisition of Emporiki Bank

Under state aid rules, aided banks are in principle prohibited from using state aid to make acquisitions. However, the acquisition of Emporiki Bank by Alpha Bank in 2012 was not financed by state aid and did not require additional state support as Emporiki bank was fully capitalised up to the level requested by the regulator and was bought by Alpha Bank for €1.

Furthermore, the acquisition of Emporiki Bank was positive for the viability of Alpha Bank as the merger created opportunities to realise significant synergies. Finally, only aided banks submitted valid bids so there was no crowding out of non-aided bidders.

The Commission concluded that the state support received by Alpha Bank in the context of its restructuring and the bank’s acquisition of Emporiki Bank were in line with the EU rules on state aid for the restructuring of banks during the crisis.

Background

Alpha Bank provides universal banking services mainly in South Eastern Europe, with a focus on Greece, where it is the third largest bank in terms of net loans and deposits.

In 2009, Greece subscribed Alpha Bank preference shares for €940 million and the HFSF invested around €4 billion in 2012 and 2013. This is the smallest amount put up by the HFSF for the four systemic Greek banks (Eurobank, National Bank of Greece, Piraeus Bank and Alpha Bank).

In April 2014 Alpha bank raised €1.2 billion on the market to cover the capital shortfall determined by the 2013 stress test of the Bank of Greece and repaid the preference shares.

The common EU rules on state support for the restructuring of banks during the crisis (see IP/13/672 and MEMO/13/886) are aimed at ensuring that aided banks become viable in the long term – that is to say, state funding that merely serves to keep unsustainable banks artificially alive without restructuring them is not allowed.

Moreover, the rules ensure that the aid is limited to the minimum necessary to achieve this result without wasting taxpayers’ money and that the distortions of competition brought about by the subsidies, which give aided banks an advantage over their competitors who did not receive such state aid, are being compensated.

Source: European Commission press release