On November 12, the Athens Stock Exchange was stunned by Deutsche Bank’s announcement that it would sell its 9.3% of Greece’s third largest bank (in assets), EFG Eurobank Ergasias . While Eurobank managing director Nikos Nanopoulos and economy & finance minister Nikos Christodoulakis downplayed the event, the “divorce” made the Greek financial world jittery. The Athens stock market dipped –0.60% on the day the decision was made public.

In 1998, the Deutsche Bank investment in newcomer Eurobank had been heralded as a show of trust in the bank and economy. There was rampant speculation that the opposite could be drawn from the new events.

Nothing personal
Yet in its public statement, Deutsche Bank (DB) diplomatically explained that its decision was not rooted in problems with the Latsis Group’s s Eurobank or trends within the Greek economy. The bank explained, “This transaction continues Deutsche Bank’s strategy of divesting holdings in other listed companies.” Like the rest of the German banking world, DB has been struggling to recover from two terrible years. Recently, under chairman Josef Ackermann’s leadership, it has sold shares of non-core business holdings and restructured (with 15,000 lay-offs in the last few years) in order to finally see profits again in 2003.

In its statement, the bank affirmed that it will continue to work with Eurobank and that “DB continues its successful business activities in the Greek financial market”. The German bank’s presence remains in investments of various sizes in seven other Greek companies also listed on the Sophocleous stock market.

In his response, Eurobank’s Nanopoulos pointed to similar Deutsche Bank moves regarding Allianz and Daimler Chrysler . He also underlined that ties with the German bank have always been “excellent” and that Eurobank will continue to offer certain DB bank products/services. DB still holds 20% of EFG Properties, a joint real estate investment owned 50% by Eurobank and 30% by Latsis’ Lambda Development . Nanopoulos went as far as to argue that the DB move could actually help EFG Eurobank Ergasias by allowing it to broaden its shareholding base and free the bank to enter new relationships.

Minister Christodoulakis admitted that the DB decision has prompted soul-searching, but concluded it was out of Greek hands. Newspaper Ta Nea quoted him as saying: “When international companies restructure, the little companies on the periphery pay.” A major contradiction in Deutsche Bank’s divestment plan also stands out: on November 3 it announced the purchase of 40% of Russian Bank United Financial Group. Head of Global Equities Kevin Parker explained DB was eager to enter “the largest and most important market…in Eastern Europe.”

DB profits, Eurobank growth
On November 12 and 13, the 29,2 million Deutsche Bank shares were sold in an accelerated book building process at a discounted average price of 13.20 euros/share. The demand was reportedly 2.2 percent higher than supply and 80% of buyers were foreign institutional investors. Before the DB announcement, the stock was at 14,86 euros/share. The stock closed at 13.88 euros on November 13, and dipped slightly the next week (13.42 by November 18). Eurobank was the joint lead manager and coordinator of Greek private placement. DB profited, having purchased the stocks at 10 euros in 1998.

Yet Eurobank (est 1990, owned 41% by Geneva-based EFG Bank Group ) has benefited too. It is not the bank it used to be in 1998 . Deutsche Bank helped it merge with Ergobank (Ergasias Bank) in 2000. Eurobank has become one of the most important presences on the Athens bourse. It has received international kudos for its e-banking services and is one of the leaders in Greek consumer loans, credit cards and mutual fund management. Its corporate banking and investment banking is handled through its brokerage house subsidiary EFG Telesis Finance SA and capital markets branch EFG Eurobank Securities.

EFG Eurobank Ergasias has also become more of an international player, spreading into other Balkan countries. It owns 92% of Post Banka Serbia and 43% of Post Banc Bulgaria. A November 14 deal with Portugal’s Banco BPI increased its share in Banc Post Romania to 53,25%.

Eurobank employs 12,000 people, with 300 branches and 620 ATMs. A few days before the DB move, Eurobank announced its revenues for the first nine months of 2003 were up 23.5% over those of 2002, at 194 million euros.

Gains, despite appearances
While pessimists fear that Deutsche Bank’s move could trigger Credit Agricole to pull out of Emporiki Bank and ING to sell shares of Piraeus Bank , the Athens financial world is taking a wait-and-see approach.

Economic analyst Zoe Vassiliou, of investment services company Fasma Securities , doesn’t think the DB move will have major long-term effects - or reflect badly on - Eurobank. She points out that the German bank held onto Eurobank longer than it did with other larger minority shares. She thinks, “Eurobank came out a winner” from its association with the German giant. Vassiliou sees lots of potential in its Balkan investments. The analyst believes the bank will remain on course: “Eurobank has its own programme”.

For his part, Vassilis Kararizos, research head at Marfin Hellenic Securities , points to short-term negative effects on investors and Eurobank stocks. Yet, without any visible quantitative detriment to the Greek bank’s worth, he says Marfin’s attitude towards Eurobank remains unchanged. Kararizos identifies possible “psychological” problems, however, as Eurobank no longer has the German brand name behind it.

Eurobank will also lose some capital markets exclusivity that Deutsche Bank afforded, which may hurt its ability to undertake major government contracts. Kararizos believes most investment companies are hesitating to make hasty judgements on the Deutsche Bank-Eurobank divorce. This attitude was reinforced by analysts at Moody’s , who chalked down the Deutsche Bank involvement as a good education for the Greek bank, without calling the larger bank’s departure very harmful.