Board meets today for crucial vote
Bank of Cyprus Pcl may decide to withdraw from the race to win control of Emporiki Bank of Greece following a shock decision by the Greek Constitutional Council, which ruled that a previous arrangement on the pension obligations of Emporiki, safeguarded by the Greek state, was unconstitutional.
The BOC board is scheduled to meet today to decide whether or not to proceed with the bid in view of the uncertainty regarding the Emporiki staff pension liabilities that could reach as much as EUR 600 mln to EUR 800 mln.
BOC board members will hear expert opinion by legal advisors flown in from Greece who will have to convince them and give safeguards whether possible guarantees and other remedies to be given by the Greek government by Friday will be valid or wheteher another authority may decide to rule them as unconstitutional again.
Informed sources told the Financial Mirror that the crucial decision to be taken is the extent of the pension fund liabilities, and also whether guarantees given by the Greek state can be trusted.
“The uncertainty is too big for the board of BOC to ignore, which is why most probably they (board members) will decide to ditch the plan to buy Emporiki,” said the well informed source who also cited concerns raised by the Central Bank of Cyprus on the matter.
Share price rebound?
In view of the fact that since the BOC bid for Emporiki was made known, the share price of BOC has come under intense selling pressure, losing as much as CYP 1 per share, or 25% of its value to the current levels of CYP 3.65, a possible withdrawal is seen as boosting the share price sharply higher again.
“Without the uncertainty of Emporiki, there should be nothing to hold the BOC share price back,” said an experienced trader, who nevertheless cautioned that the investment strategy to be taken by Piraeus Bank, holding 8.15% of the capital of BOC will be crucial in how the share price trades in the near term.
Reports that Piraeus was obliged to raise EUR 300 mln in Tier 2 capital last week at an expensive price of 60bps above LIBOR is seen as limiting its ability to continue with new purchases of BOC shares, and definitely rules out Piraeus having any chance to submit an all-cash bid for control of BOC.
“Piraeus is stuck with its investment in BOC, which cost it some EUR 400 mln.” To take control, they may offer some sort of share swap or try to get to 20% control, but such a method will certainly fail to impress Cypriot investors,” said a well informed source, adding that the other option could be for a gradual trimming of their positions on BOC rallies.
Greek U-turn
BOC insiders are furious at the turn of events regarding the pension fund settlement previously reached by the Greek government, which essentially guaranteed Emporiki staff a payment.
The arrangement, on which the BOC and Credit Agricole bids were based, was further backed by expert opinion from Greek Constitutional experts Tsatsos and Kasimatis who had expressed their opinion that the arrangement whereby the Greek government had made commitments to cover the Greek bank pension liabilities were constitutional and legal.
The sudden U-turn by the Constitutional Council is likely to lead to industrial dispute at Emporiki, with unions threatening to go on strike, and maybe even force CA to back down, but definitely not improve its offered price of 23.50 euros per share seeking minimum 40% control of Emporiki.
