Lombard Bank’s major shareholder takes €2.5 billion hit on Greek debt

Lombard Bank Malta's major shareholder Marfin, of Cyprus, has announced a record net loss of €3.3 billion in 2011 after incorporating a 62% "haircut" on toxic Greek bonds.

Marfin Popular Bank acquired a stake in Lombard Bank Malta plc in 2007, and its equity has grown to 48.9% since then. It's the second largest bank in Cyprus and the fifth largest bank in Greece, listed on both countries' stock exchanges. Its largest shareholder is Dubai Financial, a member of Dubai Investment Group, the Gulf emirate's investment arm.

Lombard Bank is also the majority shareholder (67%) in Maltapost, the island's only postal service.

In a statement, Marfi said there were net losses of €2.5 billion due to Greek government bond restructuring. In finance, a haircut is a percentage that is subtracted from the market value of an asset that is being used as collateral. The size of the haircut reflects the perceived risk associated with holding the asset.

Apart from the Greek debt write-down, a €796 million "goodwill impairment" related to Greek operations was also taken into account, making total losses after tax of €3.335 billion for 2011.

The group holds Greek government bonds with a nominal value €3 billion.

The charge does not affect the group's regulatory capital position, and the bank said it was optimistic about achieving its capital enhancement plan to raise €1.5 billion euro as an adequate buffer against the euro crisis worsening.

The Bank of Cyprus posted a one billion euro net loss last week after writing off Greek sovereign debt. "Marfin has suffered significant losses stemming mainly from the private sector involvement in the Greek sovereign debt restructuring, but also from the ongoing poor Greek macroeconomic conditions," said group chairman Michael Sarri. "We have acknowledged the problem in full transparency, which enables us to embark on a new beginning."

In 1975, the Maltese government purchased 25% of the bank's ordinary shares, and a further 35% in 1981 while 40% were retained by Natwest's Lombard North Central. In April 1990 the bank became a public limited company, divesting itself of the government shareholding. In 1994, Lombard Bank listed its shares on the Malta Stock Exchange.