The announced merger of two of Greece’s biggest lenders kicked off a celebration on Wall Street, leading to a broad rally with stocks soaring more than 2%.  The good news managed to drown out the loud noise from Finland, which has been threatening to pull out of any Greek bailout.

Finland has proposed that Greek state assets be transferred to a Luxembourg-based holding company and held as security for new loans to Athens.  The proposal, drafted in June, remains a central plank of Finnish demands for collateral in return for more aid to Greece.  Senior euro zone officials held another conference call on Monday to try to resolve the collateral issue.

Greek Banks to Merge.   The announced merger of Alpha Bank and Eurobank is a move that's expected to increase confidence in the country’s beleaguered economy.  The combined entity, which will have the equivalent of $212 billion in total assets, will become the largest lender in Greece.  The merger is welcome news for a country in the midst of a sovereign debt crisis.  Owning large swaths of the country’s troubled debt, the Greek banks have found themselves at the center of the mess. 

As Greek bonds essentially proved worthless as collateral, foreign investors balked at lending to Greek financial firms. With few sources of funds, banks pulled back and credit tightened.  But by merging, Alpha Bank and Eurobank are looking to strengthen the capital position of the combined bank and gain necessary heft to weather the crisis.  The deal will help bolster the combined bank’s overall capital position, by eventually increasing its buffer to 14%.  It also signals foreign interest, with the main shareholders  including Paramount Services Holding, a prominent family in Qatar.

The deal, whichstill must be approved by regulators, is expected to be completed in mid-December.  Citigroup and JPMorgan Chase served as financial advisers to Alpha Bank, while Eurobank worked with Barclays Capital, Goldman Sachs and Rothschild.   [Reuters, Dealbook, 8/29/11]