A kinder, gentler bank merger?

VILNIUS – Since the spring of 1998, the characters and story line in Lithuania's steamiest bank merging saga have been fairly consistent.
Vilniaus Bankas, the largest Lithuanian commercial bank, typically tries to buy a 43 percent stake with 50 percent voting rights in its main competitor, Hermis.
The uncooperative Hermis, however, always manages to wiggle free one way or another. But now, an unexpected new twist to the story has developed as the two rivals suddenly announced that they are both ready to tie the knot.
The management of both banks signed an agreement on the terms and conditions of a possible bank merger June 8. According to a joint statement, the banks are hoping to merge as "two equal institutions" in order to form a brand new bank with a brand new name that will assume "all rights and obligations of both institutions."
The pleasant and agreeable tone of the joint statement seems almost spooky considering Hermis regarded Vilniaus Bankas' previous attempts to purchase its shares as "hostile." Although many details of the agreement's terms are still regarded as "confidential," it seems the banks have already left their formerly stormy relationship behind.
"The agreement removed the tension that had put a strain on both banks since the spring of 1998 and will release the banks' resources to improve client services, add value to both institutions' shares and strengthen the financial sector of the country," read the banks' statement. "The merger will help Lithuanian banks to acquire a definite competitive edge across the Baltic region."
Local banking experts are also applauding the decision to merge. Eugenija Martinaityte, director of the Lithuanian Banking, Insurance and Finance Institute, said it is time for a bigger and stronger Lithuanian commercial bank to emerge, especially with more foreign banks filtering into the Lithuanian banking market.
"It's a clever decision. We really need a large commercial bank. I think [Vilniaus and Hermis] will strengthen each other," predicted Martinaityte. "[Estonia's] Hansabank is coming and the German Nordlandesbank is planning on opening a branch."
Eduardas Vilkelis, head of the Lithuanian Commercial Bankers' Association, also gave the move high marks by calling the perspective merger a "positive" step.

"It means that the enlargement process has started," said Vilkelis. "On the international scale, Vilniaus Bankas and Hermis are not very big banks. But in Lithuania, [their unity] will make them large enough to work on big projects."
While the announcement of the banks' wedding plans did seem to come without much warning, they have no intentions of eloping. Approval by the Bank of Lithuania, the country's central bank, is still needed. And, as Vilniaus Bankas representatives already know, getting a green light from the central bank is not a task that can be taken lightly.
In the spring of 1998 when Vilniaus first requested a go-ahead from the Bank of Lithuania, the central bank responded by putting the request on the back burner. Vilniaus Bankas ended up canceling its request.
A couple months ago, it seemed Vilniaus was again on the verge of sucking up Hermis. But Vilniaus decided to yank its application to the central bank for the Hermis shares at the last minute. Vilniaus Bankas said the action was inspired by Hermis' "uncertain" financial picture.
"The next steps are obvious - to get official permission from the [appropriate] governmental institutions," Vilniaus Bankas marketing department head, Alexander Federas, told TBT. "The main point is the central bank. There have been a number of applications in the past. But this is different in a sense from former [attempts], which involved the purchase of 50 percent voting rights. This is a voluntary merger - a new bank with a new name."
New regulations, which were recently announced by the central bank, could also act as a hurdle for a merger by the two banks. For example, a Vilniaus-Hermis combo would not be allowed to exceed 40 percent of the market. That and other rules could make it somewhat difficult for the top two Lithuanian commercial banks to meld. Martinaityte and Vilkelis, however, seemed to feel the regulations would not present an unpassable obstacle for the two bank's plans.
But even if an approval by the central bank was in the bag, the new united bank will not emerge anytime soon. Hermis and Vilniaus have both stated that the negotiation and reorganization process is also expected to be "time-consuming and complex."
"It is a long process," said Federas. "The merging of two banks is always a long process in any country. These are the two largest banks in Lithuania. No one can say exactly how long it will take."