France’s third-largest bank, Crédit Agricole, is leaving Greece at painful cost. It has agreed to sell its Greek Emporiki unit to rival Alpha Bank for a token €1. The pain deepens. Before exiting, it will inject more funds into Emporiki and buy €150 million of convertible bonds issued by Alpha Bank—leading to a net income loss in the third quarter of about €2 billion ($2.6 billion). How’s that for a Grexit?
But that’s not all.
Greece’s central bank demanded earlier this year that Crédit Agricole recapitalize its loss-making unit before exiting, by another €600 to €700 million euros. Otherwise it wouldn’t approve the sale of the bank Crédit Agricole bought in 2006. By the end of September, Crédit Agricole’s net funding to Emporiki was €2.1 billion. The French bank will attempt to reduce its funding exposure by buying assets of Emporiki and Alpha Bank in the short-term.
Crédit Agricole’s exit suggests that company executives think leaving Greece now, even at great expense, will prove far more economical than sticking around. Already the bank’s foray into Southern Europe has proved extremely costly. Between 2008 and 2011, Emporiki lost €4.42 billion (paywall), and another €1.28 billion for the first six months of 2012. Crédit Agricole’s exposure to Greece, has been the greatest of all the French banks.
The official statement said:
The transaction forms part of Crédit Agricole S.A.’s strategy to strengthen its financial structure and continued refocusing on its core business in line with its strategic plan. Crédit Agricole S.A. deems that the cumulative effects of the transaction would assist it in reaching the solvency targets of Crédit Agricole Group at year-end 2013 as previously announced.
Translation: We’re getting out to stop hemorrhaging cash before it’s too late.