European Commission Approval of Alpha Bank Restructuring Plan Is Credit Positive
On 9 July, the European Commission (EC) announced that it had approved Alpha Bank AE’s (Caa1 stable,
E/caa2 stable2
) restructuring plan after the bank received state aid from the government-owned Hellenic
Financial Stability Fund (HFSF). The EC found that Alpha Bank’s restructuring plan, including its
acquisition of Emporiki Bank in 2012, was in line with the European Union’s state aid rules, and that the
bank’s aid from the state had a limited effect on competition. This development is credit positive for Alpha
Bank because it allows the bank to proceed with the uninterrupted implementation of its restructuring plan,
which has already improved its credit profile.
Among Greece’s four largest banks, Alpha Bank received the smallest amount of state support (€4 billion)
from the HFSF in June 2013, but had to submit a five-year restructuring plan to the EC. The EC’s
approval ensures that the bank can continue executing its restructuring plan without having to make any
significant adjustments. We note that the external international consultants appointed as trustees by the EC
closely monitor the bank’s restructuring plan.
Alpha Bank’s restructuring plan includes a further downsizing of the bank’s foreign operations and a focus
on the bank’s core Greek operations, the sale of non-core assets, a reduction of its operating expenses,
reinforcing its net interest income and stricter risk monitoring. The bank began implementing its plan last
year, and has produced positive results so far.
The bank has made significant progress rationalising its cost base (see exhibit), integrating Emporiki Bank,
which it acquired from Credit Agricole S.A. (A2 negative, D/ba2 stable) in 2012, and realising synergies.
We expect that the possible introduction of a voluntary retirement scheme for its employees by the end of
this year will further reduce operating costs. The bank expects annual cost savings from its voluntary
retirement scheme of around €100 million per year, or around 10% of the bank’s annualised pre-provision
income as of March 2014.
In addition, we expect that Alpha Bank’s credit profile will likely benefit from the downsizing of its foreign
operations, especially in the Balkans, where its subsidiaries are either small or not self-funded. We expect
the bank to retain its operations in Cyprus and Romania, where it has lending market shares of 7.8% and
5.7%, respectively, because the bank considers these franchises as part of its core banking assets.
Despite the significant asset quality challenges that we expect all Greek banks to continue to face, and
which will exert considerable pressure on bottom-line earnings in 2014-15, we expect Alpha Bank’s
restructuring measures to support the bank’s core pre-provision income and viability, aided by Greece’s
gradually improving economy. These factors will also allow the bank to return to the HFSF the state aid it
received through the increased participation of private-sector shareholders over the next two to three years.
On 9 July, the European Commission (EC) announced that it had approved Alpha Bank AE’s (Caa1 stable,
E/caa2 stable2
) restructuring plan after the bank received state aid from the government-owned Hellenic
Financial Stability Fund (HFSF). The EC found that Alpha Bank’s restructuring plan, including its
acquisition of Emporiki Bank in 2012, was in line with the European Union’s state aid rules, and that the
bank’s aid from the state had a limited effect on competition. This development is credit positive for Alpha
Bank because it allows the bank to proceed with the uninterrupted implementation of its restructuring plan,
which has already improved its credit profile.
Among Greece’s four largest banks, Alpha Bank received the smallest amount of state support (€4 billion)
from the HFSF in June 2013, but had to submit a five-year restructuring plan to the EC. The EC’s
approval ensures that the bank can continue executing its restructuring plan without having to make any
significant adjustments. We note that the external international consultants appointed as trustees by the EC
closely monitor the bank’s restructuring plan.
Alpha Bank’s restructuring plan includes a further downsizing of the bank’s foreign operations and a focus
on the bank’s core Greek operations, the sale of non-core assets, a reduction of its operating expenses,
reinforcing its net interest income and stricter risk monitoring. The bank began implementing its plan last
year, and has produced positive results so far.
The bank has made significant progress rationalising its cost base (see exhibit), integrating Emporiki Bank,
which it acquired from Credit Agricole S.A. (A2 negative, D/ba2 stable) in 2012, and realising synergies.
We expect that the possible introduction of a voluntary retirement scheme for its employees by the end of
this year will further reduce operating costs. The bank expects annual cost savings from its voluntary
retirement scheme of around €100 million per year, or around 10% of the bank’s annualised pre-provision
income as of March 2014.
In addition, we expect that Alpha Bank’s credit profile will likely benefit from the downsizing of its foreign
operations, especially in the Balkans, where its subsidiaries are either small or not self-funded. We expect
the bank to retain its operations in Cyprus and Romania, where it has lending market shares of 7.8% and
5.7%, respectively, because the bank considers these franchises as part of its core banking assets.
Despite the significant asset quality challenges that we expect all Greek banks to continue to face, and
which will exert considerable pressure on bottom-line earnings in 2014-15, we expect Alpha Bank’s
restructuring measures to support the bank’s core pre-provision income and viability, aided by Greece’s
gradually improving economy. These factors will also allow the bank to return to the HFSF the state aid it
received through the increased participation of private-sector shareholders over the next two to three years.
