Upheaval in Greek, Cypriot banking

Is Marfin Popular Bank’s (MPB) surprise double bid for the banks of Piraeus and Cyprus last week the first step of a spectacular jolt to the Greek banking sector, or just speculative fireworks? The move definitely created both a sensation and a highly charged climate. Both the targets of the bid, Piraeus and Cyprus, reacted strongly, saying the plan lacked seriousness and was highly risky, while stressing that MPB’s stock market value was too high and far removed from reality. They also pointed out that MPB’s double public offer was devoid of any cash exchange, envisaging only share swaps. The main issue, which will determine developments in the next few days, is whether MPB’s offer for Piraeus was legal. The Capital Market Commission’s ruling will largely depend on the stance of Cypriot authorities, which said on Saturday that MPB’s bids possibly infringed the island’s mergers and acquisition law. »The Commission… has decided that the action of Marfin Popular Bank to submit a bid for the acquisition of Bank of Cyprus and Piraeus Bank is a possible infringement of Article 21 of the mergers and acquisitions law,» the Cyprus Securities Commission said in a statement. MPB’s tender followed a bid launched a day earlier by Piraeus to take over MPB, itself the recent product of a merger involving banks Marfin, Egnatia and Cyprus’s Laiki. Greek legislation says that a company launching a public offer cannot at the same time become a buyout target. The Commission said it had sought written explanations from MPB. The bank has until tomorrow to respond, the Commission said in a statement. MPB’s double bid created unprecedented tension in the Greek banking sector. The Athens Stock Exchange suspended trading of all shares involved and the Bank of Greece called on companies pursuing mergers and acquisitions to refrain from making statements that could confuse the public and damage the sector’s reputation. «Following recent developments in the banking sector… the credit institutions should avoid statements that create confusion,» the central bank said in a statement. The Piraeus-MPB clash has created an especially complex situation. If Cypriot authorities ultimately endorse Piraeus Bank’s initial bid for MPB, the latter will not be able to bid, either for the Bank of Cyprus or Piraeus. Piraeus’s bid was clearly a defensive move, designed to thwart MPB’s own. MPB’s chief, Andreas Vgenopoulos, had already notified the government and the Bank of Greece of his intention to bid for Piraeus and Cyprus. Mega-merger MPB officials argue that the merging of the three banks will create the biggest credit institution in the Mediterranean, with assets of 77 billion euros, deposits of 54 billion euros and a loan portfolio of 46 billion, with 1,040 branches in 17 countries. They say that the absence of premiums in the two bids (they were based on Piraeus’s and Cyprus’s closing prices on Thursday) indicated the friendly approach it had adopted, which was designed to maximize the benefits for the shareholders of all three banks. Further, they say the proposals should be left to shareholders to evaluate. Banking officials have taken the view that two points will be key in determining the outcome: First, which of the two bids is judged as valid and, second, whether Vgenopoulos has indeed secured the 5 billion euros for MPB’s share capital increase which he announced the week before. They note that MPB’s proposed share swap may only be the start of the bidding process, as the price may be further improved. The defensive nature of Piraeus’s bid is shown by the fact that its own proposed share-swap ratio represented about a 50 percent discount of MPB’s shares. For its part, the Bank of Cyprus (BoC), was even more caustic in its response to MPB. «The proposal lacks seriousness. The idea alone of attempting to merge five banks at the same time is particularly superficial and dangerous,» BoC said in a statement. Officials further expressed the view that even if the merger went ahead, it would be difficult for the Competition Commission to approve it, as it would have a dominant position in the Cyprus market.

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