Deals of the Year 2014: Eurobank Ergasias Spearheads a Greek Banking Revival

Thanks to its landmark €2.9 billion rights issue, the once-troubled lender became the country’s first to return to private hands.

GREECE BANKS

Angelos Tzortzinis

As the country that ignited the euro zone crisis and created turmoil throughout the Continent’s financial sector, Greece seems an unlikely venue for a banking recovery. More surprising still, Eurobank Ergasias, until recently the most troubled major Greek lender, led the revival by pulling off one of the most significant bank deals of 2014. With its €2.9 billion ($4 billion) May rights issue, one of the largest capital-raisings in Greek history, Eurobank became the first — and is still the only — local lender to return to majority private sector ownership.

Credit the transformation to Christos Megalou, 55, a longtime investment banker whom Eurobank tapped in June 2013 as its CEO. “This was my first experience in commercial banking,” says the tall, gray-haired, Athens-born executive, whose previous post was vice chairman of investment banking for Southern Europe at Credit Suisse. “But if you’re under pressure, you have to deliver.”

Steeped in net losses that would reach €5.5 billion in 2011, Eurobank was taken over in 2010 by the Greek government, backed by a troika of creditors: the European Central Bank, the European Commission and the International Monetary Fund. Megalou’s mission was to drastically reduce costs, maintain the confidence of depositors and return the bank to private sector control. “Christos did a huge marketing job to attract some of the most important institutional investors across the world,” says Aristidis Vourakis, London-based head of European financial institutions for J.P. Morgan, the JPMorgan Chase & Co. unit that headed a list of ten book runners for the deal, along with Barclays and Deutsche Bank. Total fees were $117 million, according to Freeman Consulting Services and Thomson Reuters.

Megalou and Vourakis say the task was facilitated by an anchor investor group that included, among others, Capital Group Cos. of Los Angeles, Toronto-based Fairfax Financial Holdings and WL Ross & Co., the New York firm run by Wilbur Ross Jr. The group did due diligence on Eurobank and covered €1.3 billion of the €2.9 billion. “So when we actually completed the transactions, it seemed like a walk in the park,” Vourakis says. “Everybody wanted to buy into Eurobank, and we were oversubscribed three times, with more than 300 different orders for shares.”

The anchor investors took four of the 11 seats on Eurobank’s board, making it the only Greek bank with such a large number of foreign directors. “European boards in general tend not to get into as many details as American boards do,” Ross says. “But the Eurobank directors are working to accommodate the needs of their international investors.”

Those investors recently received several pieces of gratifying news. After seeing its gross domestic product shrink by a quarter between 2008 and 2013, Greece has crawled out of recession and is expected to register growth of about 0.5 percent for the past year, with prospects for a higher rate in 2015. The ECB’s asset quality review and stress test results in October showed that Eurobank had sufficient capital and wouldn’t have to go back to the market. And in the six months since the deal was completed, deposits have increased by €2.2 billion, or 5.43 percent — well above the pace at almost all other local lenders. “Depositors feel more confident about a private sector bank,” says Megalou.

Depositors and investors will feel even more confident when Eurobank finally reduces its huge provisioning charges for nonperforming loans — an industrywide affliction — and shows profits for the first time since 2010. “We are aiming for next year,” the CEO says.

Top 10 Deals of 2014

  1. Kinder Morgan Goes All In
  2. Comcast Faces Screen Test
  3. Actavis Realizes Bigger Pharma Ambitions
  4. Medtronic, Covidien Home In on Tie Up
  5. Lafarge and Holcim Pour It On
  6. Alibaba Sets IPO Record with NYSE Debut
  7. Facebook’s Data-Driven Takeover of WhatsApp
  8. Altice Turns Paper Profit
  9. Eurobank Ergasias Spearheads a Greek Banking Revival
  10. Bond Issue Boosts U.K.'s Renminbi Trading Cred
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