Identifier
Created
Classification
Origin
06NICOSIA1920
2006-11-09 15:02:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Nicosia
Cable title:  

CYPRUS: LAIKI PLANS FOR MERGER WITH GREEK MARFIN AND

Tags:  EFIN ECON CY 
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DE RUEHNC #1920/01 3131502
ZNR UUUUU ZZH
R 091502Z NOV 06
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC 7209
INFO RUEHTH/AMEMBASSY ATHENS 3729
RUEHLO/AMEMBASSY LONDON 1253
RUEHHE/AMEMBASSY HELSINKI 0389
RUEHBS/USEU BRUSSELS
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RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS NICOSIA 001920 

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON CY
SUBJECT: CYPRUS: LAIKI PLANS FOR MERGER WITH GREEK MARFIN AND
EGNATIAS ON TRACK

REFS: (A) NICOSIA 1868, (B) NICOSIA 1600, (C) NICOSIA 1092

(U) This cable is sensitive but unclassified. Please treat
accordingly.

UNCLAS NICOSIA 001920

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON CY
SUBJECT: CYPRUS: LAIKI PLANS FOR MERGER WITH GREEK MARFIN AND
EGNATIAS ON TRACK

REFS: (A) NICOSIA 1868, (B) NICOSIA 1600, (C) NICOSIA 1092

(U) This cable is sensitive but unclassified. Please treat
accordingly.


1. (SBU) Summary. The triple merger between Laiki Bank in Cyprus,
and Greek-based Marfin Financial Group and Egnatias Bank remains
firmly on track, after winning the approval of authorities in both
countries, and of Laiki shareholders on October 31. Unless there
are any unexpected surprises, the new entity should start trading in
the Greek and Cypriot stock exchanges by mid-January 2007. This
merger promises to facilitate ever-closer ties between Greek and
Cypriot banks, facilitating the expansion of both into the Balkans
and the Middle East. End Summary.

Background on Laiki
--------------

2. (U) The Cyprus Popular Bank, or Laiki as it is known locally, is
the second-largest bank in Cyprus. At the end of 2005, the total
assets of the Group amounted to CYP 7.1 billion (USD 15.3 billion).
The Group employs 3,578 people globally and operates 185 branches in
five countries (114 in Cyprus, six in the United Kingdom, 55 in
Greece, nine in Australia and one on Guernsey) and has
representative offices in Moscow, Belgrade, New York, Toronto,
Montreal and Johannesburg. Profits attributable to shareholders
reached CYP 42.7 million (USD 91.8 million) in 2005, recording an
increase of 103 percent over the previous year.

Turbulent Summer for Cypriot Banks
--------------

3. (U) The Laiki-Marfin-Egnatias merger follows a turbulent summer
in Cypriot banking which included an aborted attempt by the Bank of
Cyprus to acquire the Greek Bank Emporiki -- which ended in fiasco
-- interest shown by another Greek Bank (Piraeus) to purchase the
Bank of Cyprus, HSBC selling its minority share in Laiki, and the
Chairman of both the Bank of Cyprus and Laiki unceremoniously
getting the boot (refs. b and c.) The merger demonstrates the
growing attractiveness and internationalization of Cypriot banks
following their full recovery from the 1991-2001 Cyprus Stock
Exchange boom and bust cycle (ref a). It also is symptomatic of a
trend toward increased professionalism in Cypriot banking, once seen
as primarily consisting of "hereditary fiefdoms."


4. (U) The new entity, to be called Marfin Popular Bank, will have

total assets of 22.3 billion Euro (USD 28.1 billion),deposits of
11.7 billion Euro (USD 14.7 billion) and loans of 15.8 billion Euro
(USD 20 billion). The group's own assets will reach 3.3 billion
Euro (USD 4.1 billion) and its capitalization will reach 4.3 billion
Euro (USD 5.4 billion). It will have a network of over 300 branches
in 13 countries and a capital adequacy ratio of 17.7 percent, giving
it plenty of cash to invest. In Cyprus, Laiki is expected to
maintain its position as the second-biggest player.

Approval Not Without Controversy
--------------

5. (SBU) Laiki's shareholders were asked to vote on the merger on
October 31 -- a week later than planned -- to allow the Cypriot
Competition Protection Commission an extra week to review final
details. Securing the support of Laiki's shareholders for this deal
was not without controversy. Former Laiki Chairman Kikis
Lazarides, who had led the Bank for over 30 years, led charges that
Marfin and Egnatia's shares were being grossly overvalued, putting
all the risk of the merger clearly on Laiki and its shareholders.
Lazarides also accused Marfin's outspoken CEO and Vice President,
Andreas Vgenopoulos, of having the most to gain from the merger and
of trying to gain his (Lazarides's) support through bribery and
blackmail. Subsequent to Lazarides's removal this summer, Laiki
opened an investigation into his financial practices, which
Lazarides claimed had to do with unfounded and alleged exorbitant
overdrafts on his son's account. After a much-publicized and ugly
exchange of insults, however, Vgenopoulos remained the only one
standing.


6. (SBU) Ironically, it is Lazarides who is widely credited for
having brought in Vgenopoulos and Marfin as a way to replace HSBC's
minority stake, once the British Bank decided to cut its
long-standing relationship with Laiki. The reasons for HSBC's
departure are unclear but rumors include its growing frustration
with being unable to control Lazarides, its frustration with the
alleged non-performance of a large outstanding loan of CYP 90
million to a major Laiki stockholder -- and feared difficulties
arising over HSBC's control of several branches in the Turkish
Cypriot community -- and on land belonging to Greek Cypriots
displaced in 1974 -- which it inherited after it took over a Turkish

Bank earlier this decade.


7. (U) Laiki's main shareholders (Marfin with 13-15 percent, Tosca
Fund 8.18 percent, the Lanitis family 8.67 percent, Laiki Employees'
Provident Fund 5.66 percent and Laiki Cypria Life 1.7 percent) had
been supportive of the deal from its inception. Led by Vgenopoulos,
the large shareholders managed to win the support of the
overwhelming majority of 1,200 smaller shareholders who attended the
meeting, securing approval of the merger. In order to finance the
deal, Laiki will increase its share capital to CYP 1.4 billion (USD
3.0 billion),issuing 465.4 million new shares. The new issue will
increase Laiki's total shares to 822.9 million.

Merger Likely to Go Through
--------------

8. (U) With all requisite authorities in both Greece and Cyprus
having given the green light, and Laiki shareholders already on
board, the only thing that stands between materialization of this
merger is the concurrence of Marfin and Egnatias shareholders.
Given that the terms of the merger are particularly favorable for
Marfin and Egnatias, it is considered a near certainty that their
shareholders will quickly rubberstamp the deal. Marfin and Egnatias
shareholders have until COB December 21, 2006 to file their
acceptance statements to the National Bank of Greece.

Good Omens
--------------

9. (U) If all goes well, the shares of the new entity should start
trading on both the Cyprus Stock Exchange and Athens Stock Exchange
in mid-January 2007. As reported Ref A, the two exchanges have been
operating on a joint platform since October 30, 2006. Enthusiastic
buying of the shares of all three component firms on the two
exchanges reflects a strong "thumbs up" signal by the market.


10. (U) International credit rating firms, including Moody's and
UBS, have also been positive about the three-way merger. The latest
report by UBS noted that the bid successfully addressed Laiki's key
strategic issues of scale, geographic and product exposure, while
providing material uplift to the bank's positioning within Greek
banks, significantly improving its growth and strategic flexibility.
UBS reiterated a price target for Laiki's share at Euros 7.31 (USD
9.20) with a Buy 2 recommendation. The stock currently trades at
around Euro 6.60 (USD 8.35). UBS expects price gains for the new
entity of 23 percent in 2007 and 11 percent in 2008.


11. (U) Comment: Analysts in Cyprus are generally positive about
this merger. Marfin's steady buying of Laiki's shares prior to the
merger, which has increased Marfin's stake in Laiki to around 15.2
percent, has been welcomed by local analysts, as it reflects
Marfin's sincere commitment to make this merger work. The key now
is to ensure smooth integration of the three banks in Greece.
Cypriot banking, and the local economy in general, has a lot riding
on this venture. End Summary.

SCHLICHER