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Crunch time for BoC board

Bank of Cyprus chairman Christis Hassapis was summoned to the presidential palace yesterday prior to today's critical board meeting where the final format of the recapitalisation plan will be determined (Photo: Christos Theodories)

By George Psyllides

BANK of Cyprus (BoC) is expected to announce an increase in share capital of as much as €1bn today, as current shareholders are unhappy about the terms set by the Central Bank (CBC), that had warned last weekend it would call for their resignations if they did not proceed with a recapitalisation.

Board chairman Christis Hassapis met President Nicos Anastasiades yesterday but declined to disclose the details of their conversation.

Hassapis said the aim was to find the right solutions for the good of the bank and the economy in general.

The BoC chairman is expected to meet CBC governor Chrystalla Georghadji at 9.30am today before the scheduled board meeting.

Georghadji, who returned from a European Central Bank council meeting in Frankfurt last night, had set a three-day ultimatum for the bank to confirm adherence to the originally agreed timeframe for a capital increase.

In a letter addressed to Hassapis on Tuesday, Georghadji reminded the BoC board that on May 30 they had agreed to issue new capital by early August.

The board’s intention had also been confirmed to the CBC through twice-weekly updates provided at the CBC’s request since June 10, she said.

“As has repeatedly been explained to you, strengthening the bank’s capital base was deemed necessary by the Central Bank, both in light of the upcoming results of the [EU-wide] stress tests, and in order to satisfy a term in the troika Memorandum of Understanding which calls for maintaining capital buffers above and beyond the requirements of the First Pillar [of the Basel II accord],” the letter said.

However, reports suggested that existing shareholders were irked by a clause in the letter that sets their participation in the issue at 20 per cent.

The increase is expected to reach around €1bn but reports said the interest from investors was for almost double that amount.

Christodoulos Angastiniotis, chairman of the Cyprus Investment Promotion Agency confirmed the interest.

“US, Russian, and other investment funds are interested in the Bank of Cyprus,” he said.

The smaller political parties EDEK and DIKO have criticised the CBC over its so-called intervention.

Central Bank board member Philippos Mannaris does not appear to share their view.

“The CBC’s mission is clear – the interests of Cypriot citizens are above the interests of the shareholders and all sorts of interested parties,” he tweeted on Wednesday.

BoC was forced to convert a large portion of client deposits to equity last year when international lenders refused to provide assistance.

The process, known as a “bail-in”, marked the first time in the history of the eurozone debt crisis that distressed banks used client funds to recapitalise, instead of EU tax payers.

Based on its first-quarter results, BoC had a core tier 1 capital, a ratio of financial strength, of 10.4 per cent, increasing slightly to 10.6 per cent from the disposal of Serbian assets in May.

Under stress test baseline scenarios it should exceed 8 per cent, and in an adverse scenario 5.5 per cent.

The bank is one of more than 100 across the eurozone which will be assessed by regulators this autumn under simulated conditions of financial stress.


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