Managing your assets
Over 11 million Maltapost shares were snapped up when they were put up for sale by the government last week. Vanessa Macdonald asked Joseph Said, Lombard's chief executive officer and Maltapost's chairman, what the niche bank has in mind.
Joe Said is very brand conscious. At Lombard, for example, he appreciates that his clients are very often as wealthy as the bank itself, if not wealthier. Palazzo Spinola in Valletta that houses its headquarters creates the perfect understated ambience with its antique furniture and oil paintings.
But Mr Said is also aware that there is a whole other market out there, requiring transactions on which little profit is made but which add up when multiplied by larger volumes. Enter Maltapost, in which Lombard bought a 60 per cent stakeholding.
He gives examples of how one company can have two different - sometimes radically different - brands: The Sun and The Sunday Times, Nat West and Coutts. This is the future he sees. Lombard will focus on its branches and let Maltapost's outlets do the rest.
Lombard has always been a niche player. Forty years ago it started off as a deposit-taker, sending funds to the UK via a small office in St Paul Street. In the 1970s it was constituted as a banking institution and started to venture into functions like lending, foreign exchange, investment services and so on.
Mr Said admitted that it was not easy to compete against HSBC and Bank of Valletta, both of which inherited a core network of branches and market, the former from Barclays Bank, the latter from the National Bank of Malta.
"Lombard had none of that. It had to create its own. It could not go for the quantity so it went for the quality," he said.
Lombard recently acquired the site of the Bologna Restaurant in Valletta and is extending the headquarters. But clearly, it could never buy dozens of locations to get on an equal footing with the two big players. So it did the next best thing: it acquired Maltapost, which has 33 branches. It was an obvious move, one that Mr Said has contemplated for over a decade.
Lombard will not change its own strategy. It offers a number of business-friendly services associated with private banking, with asset management and wealth management. For example, although it offers loans, it does not see home loans as its main market.
"We lend selectively and target specific clients. I think the fact that we adopt a business approach helps because we don't lend according to a strict formula. In fact, this is why we get involved in debt restructuring. If we hear of a business that is being pressured by another bank, and feel that it has potential in the medium-term, we will cover that debt. In this way, we have ended up with many clients who were once debtors but are now creditors," he said.
He described his approach as "giving you an umbrella when it is raining".
Lombard has also successfully undertaken, albeit limitedly, merchant banking activities in consultation with and with the approval of MFSA.
"Until recently, as far as I know, we were the only bank that accepted fiduciary deposits, where the money is placed by us with an overseas bank according to a client's wishes.
"The bank has about 1,400 shareholders but does not have a specific dividend policy. For the past eight years it has been offering them the opportunity to take their dividend in shares.
"People in Malta tend to complain when they do not get a high cash dividend, but when our shareholders are offered the choice of dividend or shares, the vast majority take the shares," he said.
The bank may not be adding branches, but it is certainly growing. Its assets grew from €286 million in 2000 to €480 million. Pre-tax profits grew from €2.89 million in 2000 to €8.99 million. During this period; it only added a handful of staff to its complement of 127 in 2000.
Mr Said runs a very tight ship, which he has to do to overcome the inherent obstacles of the bank's size. Its cost-to-income ratio - a measure of the bank's efficiency, is around 38, one of the lowest on the islands (it was 52 in 2000).
It helps that the bank has a very high staff retention rate, especially at senior levels. And Mr Said knows exactly what type of person the bank needs. He admitted that he interviews every new recruit.
"Including the non-clerical staff! I want to blame no one but myself if we make a mistake."
One challenge will be to offer more automated services. Lombard has an agreement whereby its cards may be used at HSBC ATMs, but Mr Said laments that the sector has not yet fully harmonised.
Given Lombard's restricted number of branches, you would have thought that it would have been a pioneer in internet banking, which would have taken its services to its clients' doorsteps wherever they were. Mr Said said that this was on the cards for the near future.
"Our new shareholders Marfin have a very strong IT base and we obviously want to tie up with them on that," he said.
Marfin Popular Bank recently bought a 43 per cent shareholding in Lombard and the regulatory process should be completed any time now. Mr Said said that in spite of the considerable shareholding, the approach would be hands-off.
"Marfin has already announced that it plans to let us follow our own game plan and see it through."
This may be one of the reasons why Lombard was happier with a relatively small bank (relative being the key word: Marfin has assets of €29 billion) than with a big name.
"Could you imagine us having to wear the same uniforms as all the branches around the world? Marfin were very impressed by our identity and are happy for us to keep it!" he said.
The case for Maltapost
Mr Said is frank about the appeal of Maltapost. That is where there is volume. He wants it to start offering very traditional banking.
"One of the more efficient and successful banks in Malta was the Government Savings Bank, which was closed down. It offered a very basic service and that is what we are aiming for," he said.
The first service to be offered by the bank will be the encashment of pension cheques, probably by the end of the first quarter.
"Lombard had been probably the first to charge for encashing pensions cheques and we still charge probably the highest rate. Maltapost, on the other hand, will be able to offer the cheapest rate going because there will be the volumes," he explained.
Maltapost will not only be competing with the existing banks but also with new ones like Portugese bank Banif. Mr Said is not concerned.
"There is always scope for new banks. In every sector you can think of, Malta seems to have powers of absorption way beyond its demographics," he said.
Maltapost went into the black in 2006, after years of losses. It forecasts pre-tax profits of €1.66 million for 2007 and €2.26 million for this year. Nevertheless, Mr Said feels that postage rates are still low.
"A letter from Malta to Europe costs €0.37. From Italy to Malta, it costs €0.60, from Germany €0.55, from the UK €0.46," he shrugged.
There is more of a synergy between Maltapost and Lombard than one would assume. They collaborated on collectors' editions to mark the euro adoption, offering both stamps and coins. Practically all the 30,000 packs sold straight away. On January 2 the two companies also exported 31.5 tonnes of Maltese euro coins to Germany for distribution to collectors.
Although the Maltapost branches will start to offer more and more financial services, Mr Said said he would not lose sight of its postal services activities.
These will also be upgraded, in particular the courier service. Maltapost also lags on parcel business, which only represents 7 per cent of its revenue compared to the global benchmark of 27 per cent, in spite of growing e-commerce.
But one area that Mr Said believes has considerable revenue-generating potential is philately, which currently accounts for just 3 per cent of total income. The number of issues has increased from a handful a year to at least 12.
"Malta has a very strong tradition, probably because of the British connection. It was one of the first post offices with some of the first postage stamps," he said.
But Mr Said is also aware that there is a whole other market out there, requiring transactions on which little profit is made but which add up when multiplied by larger volumes. Enter Maltapost, in which Lombard bought a 60 per cent stakeholding.
He gives examples of how one company can have two different - sometimes radically different - brands: The Sun and The Sunday Times, Nat West and Coutts. This is the future he sees. Lombard will focus on its branches and let Maltapost's outlets do the rest.
Lombard has always been a niche player. Forty years ago it started off as a deposit-taker, sending funds to the UK via a small office in St Paul Street. In the 1970s it was constituted as a banking institution and started to venture into functions like lending, foreign exchange, investment services and so on.
Mr Said admitted that it was not easy to compete against HSBC and Bank of Valletta, both of which inherited a core network of branches and market, the former from Barclays Bank, the latter from the National Bank of Malta.
"Lombard had none of that. It had to create its own. It could not go for the quantity so it went for the quality," he said.
Lombard recently acquired the site of the Bologna Restaurant in Valletta and is extending the headquarters. But clearly, it could never buy dozens of locations to get on an equal footing with the two big players. So it did the next best thing: it acquired Maltapost, which has 33 branches. It was an obvious move, one that Mr Said has contemplated for over a decade.
Lombard will not change its own strategy. It offers a number of business-friendly services associated with private banking, with asset management and wealth management. For example, although it offers loans, it does not see home loans as its main market.
"We lend selectively and target specific clients. I think the fact that we adopt a business approach helps because we don't lend according to a strict formula. In fact, this is why we get involved in debt restructuring. If we hear of a business that is being pressured by another bank, and feel that it has potential in the medium-term, we will cover that debt. In this way, we have ended up with many clients who were once debtors but are now creditors," he said.
He described his approach as "giving you an umbrella when it is raining".
Lombard has also successfully undertaken, albeit limitedly, merchant banking activities in consultation with and with the approval of MFSA.
"Until recently, as far as I know, we were the only bank that accepted fiduciary deposits, where the money is placed by us with an overseas bank according to a client's wishes.
"The bank has about 1,400 shareholders but does not have a specific dividend policy. For the past eight years it has been offering them the opportunity to take their dividend in shares.
"People in Malta tend to complain when they do not get a high cash dividend, but when our shareholders are offered the choice of dividend or shares, the vast majority take the shares," he said.
The bank may not be adding branches, but it is certainly growing. Its assets grew from €286 million in 2000 to €480 million. Pre-tax profits grew from €2.89 million in 2000 to €8.99 million. During this period; it only added a handful of staff to its complement of 127 in 2000.
Mr Said runs a very tight ship, which he has to do to overcome the inherent obstacles of the bank's size. Its cost-to-income ratio - a measure of the bank's efficiency, is around 38, one of the lowest on the islands (it was 52 in 2000).
It helps that the bank has a very high staff retention rate, especially at senior levels. And Mr Said knows exactly what type of person the bank needs. He admitted that he interviews every new recruit.
"Including the non-clerical staff! I want to blame no one but myself if we make a mistake."
One challenge will be to offer more automated services. Lombard has an agreement whereby its cards may be used at HSBC ATMs, but Mr Said laments that the sector has not yet fully harmonised.
Given Lombard's restricted number of branches, you would have thought that it would have been a pioneer in internet banking, which would have taken its services to its clients' doorsteps wherever they were. Mr Said said that this was on the cards for the near future.
"Our new shareholders Marfin have a very strong IT base and we obviously want to tie up with them on that," he said.
Marfin Popular Bank recently bought a 43 per cent shareholding in Lombard and the regulatory process should be completed any time now. Mr Said said that in spite of the considerable shareholding, the approach would be hands-off.
"Marfin has already announced that it plans to let us follow our own game plan and see it through."
This may be one of the reasons why Lombard was happier with a relatively small bank (relative being the key word: Marfin has assets of €29 billion) than with a big name.
"Could you imagine us having to wear the same uniforms as all the branches around the world? Marfin were very impressed by our identity and are happy for us to keep it!" he said.
The case for Maltapost
Mr Said is frank about the appeal of Maltapost. That is where there is volume. He wants it to start offering very traditional banking.
"One of the more efficient and successful banks in Malta was the Government Savings Bank, which was closed down. It offered a very basic service and that is what we are aiming for," he said.
The first service to be offered by the bank will be the encashment of pension cheques, probably by the end of the first quarter.
"Lombard had been probably the first to charge for encashing pensions cheques and we still charge probably the highest rate. Maltapost, on the other hand, will be able to offer the cheapest rate going because there will be the volumes," he explained.
Maltapost will not only be competing with the existing banks but also with new ones like Portugese bank Banif. Mr Said is not concerned.
"There is always scope for new banks. In every sector you can think of, Malta seems to have powers of absorption way beyond its demographics," he said.
Maltapost went into the black in 2006, after years of losses. It forecasts pre-tax profits of €1.66 million for 2007 and €2.26 million for this year. Nevertheless, Mr Said feels that postage rates are still low.
"A letter from Malta to Europe costs €0.37. From Italy to Malta, it costs €0.60, from Germany €0.55, from the UK €0.46," he shrugged.
There is more of a synergy between Maltapost and Lombard than one would assume. They collaborated on collectors' editions to mark the euro adoption, offering both stamps and coins. Practically all the 30,000 packs sold straight away. On January 2 the two companies also exported 31.5 tonnes of Maltese euro coins to Germany for distribution to collectors.
Although the Maltapost branches will start to offer more and more financial services, Mr Said said he would not lose sight of its postal services activities.
These will also be upgraded, in particular the courier service. Maltapost also lags on parcel business, which only represents 7 per cent of its revenue compared to the global benchmark of 27 per cent, in spite of growing e-commerce.
But one area that Mr Said believes has considerable revenue-generating potential is philately, which currently accounts for just 3 per cent of total income. The number of issues has increased from a handful a year to at least 12.
"Malta has a very strong tradition, probably because of the British connection. It was one of the first post offices with some of the first postage stamps," he said.