Fitch IBCA Ratings - Press Releases - Fitch IBCA Places Greece's Alpha Credit Bank On RatingAlert Negative

Fitch IBCA Places Greece's Alpha Credit Bank On RatingAlert Negative

Fitch IBCA-London-7 April 1999: Fitch IBCA, the international rating agency, has placed Alpha Credit Bank's (ACB) Individual rating of 'B' on RatingAlert negative. This follows the announcement last week that ACB is to pay GRD 272 bln (USD 900 mln) for a 51% stake in state controlled Ionian & Popular Bank (Ionian), which is equivalent to around five times book value (3½ times after adjustments for unrealised gains on fixed assets and securities and additional loan provisions). While ACB's acquisition of Ionian is likely to assist its growth ambitions and potential for revenue generation, rationalisation of branch networks and cost reductions will be difficult in the Greek market. The group's asset quality, profitability and capital adequacy will deteriorate in the short-term with the consolidation of Ionian, and consequently, Fitch IBCA considers the Individual rating will be weakened. This in turn will have some effect on ACB's Long-term rating, although that is counterbalanced somewhat by increased size and diversification and the continued strong influence of a Support rating of '2'.

ACB is the largest private sector bank in Greece with a market share of around 13% of commercial banking assets. It is estimated that the acquisition will boost this market share to between 18 and 20%. Ionian is held through the state controlled Commercial Bank, and is not rated by Fitch IBCA. Ionian is a commercial bank providing a full range of banking services, and is the fourth largest bank in Greece with a market share of around 6% of commercial banking assets.

Strategically, the acquisition is important for ACB, increasing the bank's size in readiness for Greece's expected entry into EMU by 2001. Although the newly merged bank will have almost 20% domestic market share, it will still be small in comparison with other banks in the European Union. However, the acquisition is also important in terms of maintaining its position as the private sector market leader within Greece. ACB expects to benefit particularly from revenue enhancement while cost synergies may be harder to achieve given Greek banks' institutional environment. Management believes it can achieve some cost savings by means of natural staff turnover and by redeployment within the group. Ionian's branch network is slightly larger than ACB's and while there is an overlap, especially in urban areas, over half of Ionian's branches are the smaller micro-branches that fit well into ACB's growth plans. Nevertheless, the relative size of Ionian compared with ACB, and its lower efficiency levels are likely to exert pressure on ACB's management resources.

ACB intends to finance the acquisition through the issue of equity and a combination of senior and subordinated debt. Approximately GRD 130 bln of equity will be issued at the end of April, while the debt should be raised later in the year. The bank intends to purchase the remaining 49% of Ionian by means of a share-for-share exchange next year. The group's capital levels, as measured by the Tier 1 capital ratio, are expected to fall to between 9 and 10% post-acquisition from 13.5% at end-1998, as a result of the impact of goodwill and the consolidation of Ionian in the group, although offset by the planned equity issue.

The high premium paid in cash will result in an estimated goodwill figure of GRD 160 bln, which Greek GAAP allows to be written-off over a maximum of 5 years. The amortisation of goodwill, combined with non-recurring reorganisation costs is expected to constrain the groups' profitability measures in the short to medium term, despite cost savings and revenue increases.

Contact: Peter Bradley; Georgie Stewart; Gordon Scott, London Tel: +44 171 417 4222

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