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Little more than a year ago, Eurobank Ergasias symbolized all that was wrong with Greek banking. The lender had sought to secure its future through a merger with the larger National Bank of Greece, only to have the country’s bailout masters — the troika of the European Commission, the European Central Bank and the International Monetary Fund — block the deal on size grounds. Hemorrhaging red ink and unable to raise even a fraction of its massive capital needs from private investors, Eurobank was effectively nationalized through a €5.8 billion ($7.8 billion) infusion of money from the Greek government’s bank bailout fund.

Today the situation could hardly be more different. Eurobank has become a magnet for international investors eager to capitalize on the Greek turnaround story. The revival began when, in the wake of the bailout, the bank tapped a London-based investment banker, Christos Megalou, to become its chief executive. A former Credit Suisse banker, Megalou took an ax to costs, shedding 12 percent of the bank’s workforce through a voluntary retirement program. He gained scale by acquiring two smaller lenders, with the government bailout fund paying virtually all of the costs. Most important, Megalou used his investment banking Rolodex to reach out to global investors, including a group led by distressed-debt specialist Wilbur Ross Jr. that had scored big gains in Ireland’s banking revival and was looking to duplicate that success in Greece. In April the CEO raised €2.9 billion with a rights issue, making Eurobank the first big Greek lender to return to majority private ownership.

“We now have more flexibility than other banks to make strategic decisions,” Megalou says. He believes that continued cost-cutting and measures to reward more-productive employees will return the group to profitability next year. “It’s also important that clients perceive us as having a private sector mentality,” he adds.

Eurobank’s recovery is the most dramatic sign of a broad-based revival in Greek banking, one that is crucial to the country’s economic recovery. Greece’s other big banks — Alpha Bank, National Bank of Greece and Piraeus Bank — also have convinced some intrepid, mostly foreign, investors that a bank-led recovery is under way. Altogether the Big Four banks have raised €8.35 billion in equity and an additional €2.25 billion through bond offerings this year.

Recovery isn’t guaranteed. Only NBG posted a net profit in 2013, becoming the first Greek bank to return to the black since the debt crisis erupted in 2010. The Big Four will probably need another two years to regain profitability, and still more time to get bad loans under control. Fully 32 percent of the Greek banking system’s loans are nonperforming, and that rate is likely to climb further this year.

Nevertheless, bankers are confident that the worst is over. After contracting by more than 25 percent since 2008, Greece’s economy should grow by 0.8 percent this year and 2.5 percent in 2015, according to government and private economists. “We see new export-oriented businesses springing up, and we are there to finance them,” says Petros Christodoulou, deputy chief executive of NBG. Others cite gains in retail sales, new-car registrations and building permits.

The economy, and the banks, still face stiff headwinds, though. With the unemployment rate stuck at 27 percent — and almost double that for people under 30 — fear of joblessness remains widespread. The social safety net is in tatters, with the value of pension funds cut in half after a withdrawal of government bonds from their portfolios in 2012 as part of Greece’s debt restructuring.

“My daughter-in-law thinks there will be more dismissals at her museum and she may lose her job,” says Ioanna Karas, treating her two grandchildren to steaming bowls of patsa, or tripe soup, in Athens’s cavernous Central Market. Her son, a former store manager, has been unemployed for two years, and his wife, an assistant curator at a state-run antiquities museum, has taken a pay cut. “We don’t see any signs that the crisis is over,” says Karas, a widow, who moved in with her son’s family after losing much of her pension.

With the economy still weak and Greece struggling under a debt of about 175 percent of gross domestic product, many analysts believe the government will need yet another bailout next year. The troika committed €240 billion in loan agreements under earlier bailouts, in 2010 and 2012, but the IMF estimates that the government faces a €12.5 billion funding shortfall in 2015.

“There is no appetite in the euro zone countries to keep lending to Greece,” says Mujtaba Rahman, a London-based analyst for Eurasia Group, a political-risk consulting firm. “But there are €16 billion left over from the second bailout, and they could be called a ‘program extension’ instead of a third bailout.”

Servicing Greece’s massive sovereign debt will require years of continued austerity, leading some observers to worry about economic and political stability. “My biggest concern is recession fatigue,” says NBG’s Christodoulou. “After six years of austerity, people have to be convinced there is a light at the end of the tunnel, or there will be a risk of a political backlash.”

The government of Prime Minister Antonis Samaras continues to hold firm. Although Syriza, the left-wing opposition party, was the biggest winner in the European Parliament elections in May, it claimed only two of the 13 Greek regional governments in local elections held on the same day. In June, Samaras appointed Gikas Hardouvelis, formerly chief economist at Eurobank, as Finance minister, with a brief to press ahead with any needed additional austerity measures and to accelerate the privatization of state entities.

The Greek financial sector received €50 billion from the bailouts, with half of that total going to the four largest banks. But even with their recent equity issues, the Big Four may require further recapitalization. According to a June report by the IMF, lenders could require an additional €6 billion of capital. “A major concern is the very high level of loans that are not performing, including restructured loans that are considered to have a very high risk of becoming nonperforming again,” said Poul Thomsen, the IMF chief of mission for Greece.

The real picture should emerge in November, when the European Central Bank releases the results of its asset quality review and stress test of European banks. “We are all waiting nervously to see what the ECB will announce,” says Miranda Xafa, chief executive of EF Consulting, an Athens firm that advises hedge funds.

Executives at the Big Four banks reject the suggestion that they may need to raise more equity. But just in case, the Hellenic Financial Stability Fund, which the Greek government and the troika created in 2010 to stabilize the financial sector, has €11.5 billion left over from the 2012 bailout that could be used for further recapitalization.

The HFSF has already spent €38.5 billion to restructure and recapitalize the banking sector. Consolidation has played a key role. Greece had 18 banks before the crisis; today only six remain, with the Big Four accounting for more than 90 percent of assets.

PIRAEUS, TRADITIONALLY A PLAIN-VANILLA lender to small and medium-size enterprises, has pursued consolidation more aggressively than any of the big banks. It has used acquisitions to become Greece’s largest bank, and it has done so by spending barely any of its own money. “We had a very clear vision of what was happening and what opportunities existed,” explains CEO Anthimos Thomopoulos. The flight from Greece by European banks desperate to shore up their own positions back home presented particularly rich opportunities. “They left a lot of free equity on the table and even paid Greek players to acquire their banking subsidiaries,” Thomopoulos says. “Of course, we accepted.”

When Greece embarked on bank restructuring in 2012, Piraeus gained a lead on its rivals by acquiring state-owned Agricultural Bank of Greece, known by its Greek acronym, ATE, in July of that year. The deal cost Piraeus €95 million, but it came with several sweeteners. The HFSF removed ATE’s worst assets, then spent €570 million to recapitalize the bank before turning it over to Piraeus. The acquisition was primarily a liquidity play for Piraeus, which obtained ATE’s €14.3 billion in customer deposits. “We got a very good portfolio for very little,” says Thomopoulos, 53, who became head of Piraeus in 2012 after 14 years at NBG, where he had risen to deputy CEO.

In October 2012, Piraeus acquired Geniki Bank, the Greek subsidiary of France’s Société Générale. As part of the deal, SocGen invested €444 million to recapitalize its subsidiary and agreed to subscribe to a €163 million convertible bond issued by Piraeus. In return, Piraeus paid the French bank a nominal €1 million. Using a similar blueprint in June 2013, Piraeus acquired Millennium Bank Greece, a subsidiary of Portugal’s Banco Comercial Português. The Portuguese bank agreed to recapitalize its subsidiary with €413 million and to purchase €400 million of Piraeus shares. Again, Piraeus paid just €1 million for its acquisition.

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