NEWS of a merger between the Popular Bank, Greek investment firm Marfin Financial Group and Greece’s Egnatia Bank received a mixed welcome this week.
Some observers said the new group – which by the end of 2006, would have assets worth 22 billion euros and 300 branches – would establish a strong presence in the Balkans, combining the respective know-how of the three organisations.
Others were more sceptical, wary that the intended merger would collapse like a stack of cards, a repeat of the fiasco where the Bank of Cyprus’ offer to buy out Greece’s Emporiki came to nothing.
At best, some analysts predicted “execution risks” if the deal went through. They said that merging three different organisations, with different work practices, a different company ethos, different management styles, operating in different markets, carries many risks.
One thing most agree on is that if the merger goes ahead it will have a big impact on the Cyprus market, changing the balance of power in the banking market. Laiki will have a much greater potential for growth, both in Cyprus and abroad, even though it is more likely to be looking beyond the island’s boundaries for its main expansion. Marfin Financial Services is 31.5 per cent owned by Dubai Financial, an investment fund, which suggests that a planned expansion drive could be in the Middle East.
Still, Laiki Bank shareholders would be in a minority and, with foreign interests having a big say in the new group’s board of directors, there are concerns that control of the island’s second largest lender will gradually pass into foreign hands.
The bid for the two companies would be financed by an issue of new shares, priced at £3 each and would have a total value of £1.39 billion. If successful, the merger would make the new grouping a leading player in the small-to-mid-sized banks league, analysts said, adding that the profitability capacity would increase substantially.
Doubters pointed out that the shares of Marfin and Egnatia were overvalued, and that Laiki’s shareholders were getting the raw end of the deal. Especially so if Laiki’s projected profits for the next couple of years failed to materialise.
According to this theory, Laiki shareholders would be left with stock worth significantly less than it is worth now, in contrast to the Marfin stockholders, who would have already made their financial killing thanks to the exchange of shares at a very favourable rates.
But according to Christos Kalogeris, head of asset management with the Hellenic Bank, this is a pessimistic attitude.
“You can argue ad infinitum that Laiki is paying way too much. That might be true: the bid included a great deal of goodwill on Laiki’s part. But that’s not the bottom line. What matters are the tradeoffs. At least in the near future, the benefits for Laiki will be considerable.”
The proposed merger will see Laiki’s stockholders receiving a promised 4.5 per cent dividend payout for the financial year 2007.
“That’s definitely a sweetener,” says Kalogeris. “Laiki shareholders may be footing a high bill now, but the future rewards are tempting.”
And Kalogeris felt the merger would bring in many institutional investors, improving the new organisation’s buying power and giving it an overall boost.
As far as the impact on the local banking sector was concerned, Kalogeris did not expect “a reaction of any significance, at least immediately.”
Stelios Platis, an economic researcher, agreed.
“Cyprus is overbanked. I believe it has the highest concentration of banks inside the EU. So the merger will probably not affect the local market. If anything, it will result in greater competition, which as a rule is a good thing.
“I don’t believe this is about foreign interests trying to take over the Cyprus market. The real battleground is Greece – it’s the Holy Grail. The Greek market is the new frontier, if you will, since the banking sector there is not as developed as in Cyprus.
“In this sense, I tend to reject the notion that the merger is inevitable, that the smallness of Cypriot banks makes them a target for foreign takeovers,” he added.
