By Elias Hazou
OUT with the old, in with the new: the €1bn capital increase at Bank of Cyprus (BoC) has shaken up the shareholder base of the island’s largest lender, which has slipped into foreign hands after more than a century as the Cypriot bank par excellence. But whether that’s good or bad depends on whom you ask.
For the bank’s CEO John Hourican, the €1bn equity investment will put the lender’s capital adequacy on a solid footing, making it one of the “best capitalised” banks in the euro area.
And in an interview with Reuters, the Irish banker said the bank “needed a turn the page moment.”
He also revealed to the news agency the bank’s plans to sell up to €1bn in bonds in September.
But to Archbishop Chrysostomos, the pending change of guard at the bank –the capital increase is set to be put for approval to an extraordinary general meeting (EGM) of shareholders next month – is anathema.
The Church of Cyprus represents a grouping of old BoC shareholders, who saw their shares’ value diminished to 1 per cent in March 2013 when the bank was restructured following a conversion of 47.5 per cent of uninsured deposits into equity, the absorption of failed Laiki bank and the selling off of the bank’s Greek operations to Piraeus bank.
“It is because of certain ne’er do wells that the Koino Kiprion (Common to all Cypriots) is no more,” the Archbishop complained yesterday, evidently alluding to local bankers and authorities whom he blames or last year’s bail-in.
The top cleric, who moonlights as an entrepreneur/financier and whose business track record is arguably less than stellar, went on to paint himself as a defender of Cypriot interests. He claimed to have personally foiled prior plans by Greece’s Piraeus Bank and by Marfin Investment Group to muscle in on Hellenic, at the time still controlled by the Church.
“I was the one who chased them away,” he asserted, speaking on the state broadcaster CyBC.
It appeared to slip the Prelate’s mind that Hellenic Bank, too, has since fallen under foreign control after the troubled lender was recapitalised late last year. Although at the same time it would explain why the Archbishop has an axe to grind when it comes to foreigners.
BoC’s move sees 4.16 billion new ordinary shares issued at 24 cents per share. With the capital increase, the bank’s shares will number 8.9 billion, of which the new shares account for 47 per cent prior subject to the so-called ‘clawback’ opportunity to be offered to existing shareholders.
Russians already have a significant presence in BoC’s investor base and board, as they held large deposits with the bank that were forcibly converted into shares under last year’s recapitalisation.
According to the BoC, the shares were allocated to a range of institutional investors from Europe, North America and Russia, including a number of international investors introduced by WL Ross & Co LLC and the European Bank for Reconstruction and Development (EBRD).
The EBRD said it would invest up to €120m. In an announcement, the bank said its investment in BoC represented a vote of confidence in the Cypriot economy.
“As an active shareholder one of our priorities will be to work towards improvements in corporate governance. This successful capital raise is a positive signal to the markets, providing investors with additional confidence,” EBRD’s First Vice President Phil Bennett said.
Media reports said that WL Ross & Co LLC represented up to 40 per cent of the €1bn private placement. The €400m investment works out to close to 19 per cent of the total shares value post-capital increase (€2.12bn), potentially making it the single largest stakeholder in BoC, supplanting the legacy Laiki depositors who currently hold 18 per cent.
Hourican meanwhile told Reuters the new investors would want “a seat or two” on the board. “We’re very happy to accommodate that,” he added.
Though the investors under the WL Ross & Co. LLC umbrella have so far not been named, the Mail hears that Goldman Sachs has got a slice of the pie.
WL Ross & Co. LLC is a private equity firm specialising in restructurings, buyouts, turnarounds, reorganisations and industry consolidations. The firm invests in financially distressed companies.
According to Wikipedia, the company’s founder Wilbur Ross “specialises in leveraged buyouts and distressed businesses. In 2011, Forbes magazine listed Ross as one of the world’s billionaires with a net worth of $1.9 billion.”
Another website, the ‘Wilbur Ross Resource Page’, dubs Ross a “renowned vulture investor” and a “bank eater.”
Wilbur Ross told Reuters yesterday: “We’re not 100 percent sure of how many shares any of us will end up buying,” Ross told Reuters in a telephone interview, agreeing that his own stake would be “significant”. “The board (of Bank of Cyprus) will have to decide from whom to take those shares (if existing shareholders want new shares as well).”
Ross said the uncertainty around the exact outcome was the reason that the other investors introduced by him to Bank of Cyprus had not yet been publicly named. Ross described them as “normal institutions”.
“Many of them have invested in banks before, some have invested in Greek banks, some have invested in Irish banks and some have invested in UK banks,” he said.
Ross said the new investors would contemplate taking seats on the bank’s board, but that any directorships would be subject to regulatory and shareholder approval. “The key thing is the group of investors is going to play an active role in the affairs of the bank,” he said.
The 76-year-old, who has invested in other crisis-stricken banks, including Bank of Ireland and Greece’s Eurobank added: “We’re always looking for opportunities.”
Ross said it was too early to say if his Bank of Cyprus investment would make comparable gains to those of his Bank of Ireland deal, where he made him a profit of €500 million on a €290 million investment in less than three years. “Cyprus is a lot closer to recovery than Ireland was when we bought into it,” he said.
The coverage from media outlets here has been mostly alarmist, with commentators warning that the foreign hedge funds will sell off their shares once their price rises when they are again traded on the stock exchange.
But a leading economist and former banker brushed aside the gloom and doom, arguing that one shouldn’t lose sight of the fact that at end of the day BoC has got a huge injection of capital.
“Sure, the hedge funds may dump their shares for a quick profit. So what else is new?,” remarked Mike Spanos, recalling the 1999 stock market crash which shows that Cypriots can be just as greedy as anyone else.
“A mix of institutional investors and speculators is good. As for the ‘outsiders’ gaining control of the bank, I say, so much the better,” he told the Mail.
“Look at how the Cypriots ran things: both Bank of Cyprus and Laiki went bust.”