Thursday, 21 August 2014

Bank of Cyprus and Laiki Bank: a match made in haste

I was delighted to talk recently to Philippos Leandrou, manager of IT services at Bank of Cyprus, about the project which finished earlier this year to merge Bank of Cyprus and Laiki Bank.

This merger was dictated by the EU as part of a bail-out which ‘crushed’ Cyprus. Except in the case where the EU willed it, the merger would surely have been disallowed otherwise, since it leaves Cyprus with effectively one bank. The terms of the bail-out saw all deposits over €100,000 in Laiki Bank and Bank of Cyprus used by the government to contribute to the bail-out.

The bank was in the news again recently as it managed to raise $1 billion in new capital, although this highlighted the peculiar situation in which the largest depositors – whose money was confiscated and converted to shares – are now the owners of the bank. ‘As a result, the new board is now a mélange of Russian oligarchs (or their lawyers), Cypriot pension and provident funds, and a hodge-podge of other representatives who never expected to be running a bank, much less owning one,’ said the Wall Street Journal.

This affected the way the capital raising happened, since the board/depositors didn’t want to see their shares diluted. Their interest is not so much long term value as regaining what was lost in the bail-in.

The placement did go ahead, but only subject to a clawback clause and further phases which have the effect of partly protecting the value of the existing shareholders.

Any progress made is testament to the success of the merger, which had some unique challenges from an IT perspective. There was nothing in the way of planning or due diligence. The project took place against a background of customer revolt, with suppliers and partners alienated and immense uncertainty about the future of the bank and even the country.

It was definitely one of the more interesting integration projects I have written about, and will be covered at length in an upcoming issue of the IBS Journal.

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