Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Western EuropeMarch 5 2007

In the bidding labyrinth

Are the Bank of Cyprus’s days numbered? Nick Kochan reports on the rival predators’ struggle for the bank, and the opposing forces of regulators and nationalists.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Foreign predators are moving in on Cyprus’s key banking asset, in the wake of the island’s membership of the EU. The Bank of Cyprus is not only unrivalled in local franchise, but it also has positions in the Russian market and in the Balkans. But now that Greek and Gulf money are targeting it, many Cypriots regard its days as numbered.

However, the path to takeover of such a prized possession is predictably tortuous and the identity of the final owner is still uncertain. The vexed deal has its origins in informal merger discussions that took place last year between the management of Marfin Popular Bank and the Bank of Cyprus. These had the potential to restructure the Cyprus banking market dramatically.

Marfin is a combination of a large Greek bank and the second largest Cypriot bank, Popular Bank. It has a Greek financial asset called Egnatia. Marfin is listed on both the Athens and Cyprus stock exchanges, but has Dubai Investment Fund as a 17% shareholder. When Marfin approached Bank of Cyprus, it made no secret of its predatory intentions.

Unwanted attentions

Bank of Cyprus regarded Marfin as a newcomer, with whom it wanted no truck. It was developing a programme of expansion into Russia and the Balkans and regarded Marfin’s attentions as a diversion.

When word of the informal discussions between the two institutions reached Bank of Piraeus, the latter saw red. Bank of Piraeus, the fourth-ranking Greek bank by assets, had also talked to Bank of Cyprus about a takeover but its proposal had been brushed away. But it had bought 7% of the Bank of Cyprus stock to become its largest shareholder.

Bank of Piraeus sought to stymie the expected Marfin offer to Bank of Cyprus by making its own bid for both banks. Marfin tried to regain ground by making a bid that mirrored the first, bidding for Bank of Piraeus and Bank of Cyprus.

The market was in confusion and the Cyprus Stock Exchange sought to clarify matters by saying that only the Bank of Piraeus bid, which had been made first, should proceed. An embittered Marfin made various legal challenges to no avail. Bank of Piraeus has two months to finalise its bid.

Under scrutiny

Regulators, including the Commission for the Protection of Competition, the Securities and Exchange Commission, the stock exchange and the Central Bank of Cyprus, are now examining the implications of the two potential takeovers.

The merger of Marfin and Bank of Cyprus raises particular concern because it would create an institution whose share of the Cyprus market would exceed 50% and, in some areas, such as corporate banking, 75%. The risk that consumer choice would be restricted is considerable.

A nationalistic lobby that wants to retain Bank of Cyprus as an independent local bank is particularly opposed to the Bank of Piraeus takeover. And Marfin’s ire is particularly directed at Bank of Piraeus. If the Piraeus bid for Bank of Cyprus is successful, Marfin would face a powerful rival, not merely for the Cyprus market but also for a slice of the growing Greek financial market.

Ambiguity

The primacy of the market is finance minister Michael Sarris’s preference. “You hear that it would be desirable if at least one or two of the Cypriot banks were to remain in Cypriot hands. But one ought to separate the desirable from the feasible, considering the costs and benefits of belonging to open markets,” Mr Sarris told The Banker.

“We should be abiding by the rules of the open market. If the result of market forces is to lead to a situation where there is only one bank, then clearly the commissioner for competition would have something to say and would make sure that situation is avoided. So we have a regulatory framework which we support strongly.”

This labyrinthine struggle for the Bank of Cyprus may be seen as a litmus test for the strength of the island’s European convictions. The outcome is still far from clear.

Was this article helpful?

Thank you for your feedback!