Piraeus Bank to absorb local Cypriot bank branches

Greece's third biggest bank to take over Bank of Cyprus and Cyprus Popular Bank

As Piraeus Bank is confirmed as the buyer of the local subsidiaries of Bank of Cyprus and Cyprus Popular Bank (formerly Marfin), pressure mounts for branches to open after the March 25 public holiday

(Reuters) (Reuters) Piraeus Bank was chosen on Friday to take over the Greek branches of Cypriot lenders, in a deal that helps shield Greek banks from the island's crisis and allows Cyprus to shrink its bloated banking sector.

The deal, announced by Greece's bank bailout fund, is subject to approval by European competition authorities.

The fund did not provide further details but officials said Piraeus, the country's No 3 bank, beat out Alpha Bank in the race for the Greek units of the two biggest Cypriot lenders – Bank of Cyprus and Cyprus Popular Bank (formerly Marfin).

Piraeus shares closed up 20% after news of the deal.

The two countries earlier announced the units would be sold to a Greek lender as Cyprus scrambles to strike a bailout deal.

Worried the crisis could trigger panic among Greek savers, Greek officials had been trying to agree a deal since early this week but were forced to put the plans on hold after Cyprus voted down an unpopular bank levy included in its bailout agreement.

"It'll be good because it will ring fence the Greek banking system," a senior Greek official said on the Greek-Cypriot deal.

European shares pared losses after news of the agreement between the two nations, which fulfils one term in the euro zone bailout deal voted down by the Cypriot parliament.

Cyprus said the deal included the "most favourable terms under the present circumstances" for the island nation.

There was no immediate announcement about the fate of the Greek operations of Cyprus's third biggest bank, Hellenic Bank , which are much smaller than those of the top two.

"It's unclear if the deal will include Hellenic Bank. Either way it won't move the needle much," a Greek bank bailout fund official said.

Local media are reporting that Hellenic Bank may remain in Cypriot hands.

Cypriot banks hold 8% of Greek banking deposits and 10% of loans. They have about 300 branches in Greece.

Eurozone finance ministers excluded the Greek branches of Cypriot banks from the deposit levy they intended to impose on Cyprus, on condition that those units would be transferred to Greek banks, which themselves are being recapitalised by bailout funds from the EU and IMF.

Tuesday reopening

Hellenic Postbank, a small lender controlled by Greece's bank bailout fund, had also been cited as a potential buyer of the Cypriot units if interest by other lenders was deemed unsatisfactory, bankers had previously told Reuters.

Athens - whose own tottering banks are only slowly seeing deposits trickle back as fears of a Greek eurozone exit fade - is determined to have Cypriot branches reopen after Monday's public holiday to avoid panic among savers, bankers said.

"The target for the Greek government and the domestic banking system is to fully operate the branches of the Cypriot banks in Greece on Tuesday without restrictions on deposits," a senior Greek banker said on condition of anonymity.

Investment manager PIMCO, which carried out a review of Cypriot bank capital needs that has yet to be published, had estimated Cypriot banks in Greece needed to be recapitalised with about 1.5bn euros in funds, the banker said.

Half of that amount is expected to be covered by the Greek bank support fund HFSF and the other half from a Cypriot bailout deal, if one is eventually agreed with the EU and IMF, the banker said.

A sale will also help Cyprus deleverage its vast banking sector, a key demand from the euro zone and the IMF.

The combined assets of Bank of Cyprus and CPB in Greece alone amount to about 22bn euros or 1.2 times Cyprus's nearly 18bn billion euro economy.

If they are sold, the ratio of assets of Cyprus's banking system to gross domestic product will go down to 6.8 from about 8 times, bankers and analysts said, a step in the right direction in the eyes of international lenders.

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