THERE was a mixed reaction to the news that the Bank of Cyprus capital issue was taken up by foreign investors, much being made of the fact that Cypriots would no longer be in control of the island’s systemic bank. Even Archbishop Chrysostomos was on a radio show yesterday morning saying that the BoC would no longer be a bank of the Cypriots as it had been for more than a century.
This is a valid point, to an extent, but it ignores the fact that it was impossible to raise the one billion euro needed by the bank domestically so as to keep it under Cypriot control. There was also a plus side. As the bank’s CEO John Hourican pointed out this was “the biggest, single, direct foreign investment into Cyprus” and “would help to ensure the Bank of Cyprus becomes one of the best capitalised banks in Europe.”
More importantly, it was a very big step on the road to recovery and the return to normalcy. The confidence shown by foreign investors the future prospects of the bank would help restore local trust and confidence which were all but destroyed by last year’s bail-in of depositors. Professional investors would not put hundreds of millions in a business if they did not believe it had a future. On the contrary they have put money in the bank, after studying its fundamentals and concluding they would secure a healthy return on their investment.
However it will not be plain-sailing for the bank because last year’s restructuring as well the latest capital issue have left many old and new shareholders unhappy and the threat of legal action looms large. While the board was discussing the new issue on Monday, the association of old shareholders, who were left with one per cent of their shares in last year’s restructuring, decided that its members would vote against the capital issue at the next general meeting and threatened to file class-action suits unless certain demands were satisfied.
Legal action could also be taken by the new shareholders, who were given shares as payment for their deposits that were bailed in, but would have their shareholding diluted as a result of the capital issue, which did not follow the provisions of company law. Both sets of shareholders have strong cases, even though they may have to wait a few years for the courts to issue decisions. It is not the ideal situation and the decisions of the Central Bank could prove very costly in the future. By that time, we hope the Bank of Cyprus would be a robust and profitable business even if it is under foreign control.