Cabinet on Friday night approved in principle Hellenic Bank’s offerfor the acquisition of a section of the state-owned Cyprus Cooperative Bank (CCB).
Speaking to reporters at the presidential palace after the decision, Finance Minister Harris Georgiades said the proposal had been approved on the condition that Hellenic Bank submitted a binding capitalization plan before the CCB convened a general meeting slated for Monday to discuss and decide on the matter.
The proposal outlines that Hellenic will be subject to a capital raise and will undertake payment of the CCB’s total deposits, amounting to €9.7 billion.
Hellenic will also take on €10.3bn of CCB’s assets consisting of loans, bonds and cash, including non-performing loans valued at approximately €500 million.
Assets worth approximately €8.3bn will be transferred to the state.
“In various cases we had to take difficult decisions but down the road it became obvious that where we dared, the result was worthwhile,” Georgiades said.
“As far as the Co-op is concerned, it is clear that behind the human element and behind the cooperative idea which certainly helped several of our fellow citizens, there was bad management. This relaxed structure can have no place in the demanding European environment.”
In April, the government deposited €2.5bn in the co-op bank raised from several bonds in return for non-performing loans worth €7bn and company shares worth €165m.
With an additional injection of €1bn towards the CCB, all of the lender’s property, worth €600m, and performing loans valued at €500m will be in the government’s hands.
All revenue reaped from the proceeds, sale and management of these assets will be additional public revenue and this is the key difference between previous deposits towards banks, Georgiades said.
“This makes the additional burden on public debt manageable,” the minister stipulated but stressed it would not be repeated.
The European Commission will also be called to approve the move, putting forward its own conditions broadly aimed at maximising state revenue.
Though damages to portfolios are not expected, the proposal includes a guarantee to buyers for any potential damages. Based on figures from an independent agency, the potential and unlikely damages in a 12-year period are not expected to exceed €184m, the minister said in his statement.
“Our aim is to have banking institutions that aren’t supported on clay legs, that have been rid of the pathogens and mistakes of the past. Through this decision, we are taking a decisive step in that direction,” Georgiades said.
Responding to criticism that has surrounded plans for CCB’s partial acquisition, the minister suggested self reflection from those complaining.
“I’d like to remind that in 2013, the CCB had €300m negative working capital. This means €300m was needed just so capital could be at zero and much more so it could be at the necessary levels. The risk of a haircut was visible and demanded state support.”
Though progress has been noted, the problem with non-performing loans granted before 2014 still burden the CCB despite the drop from €7.4bn to €6.2bn, he said.
Taxpayers are also expected to foot the bill relating to the compensation granted to staff who will be made redundant.
On Friday morning, a representative of Etyk, the bank workers union, revealed more details about how the deal will affect the state-owned bank, into which Cypriot taxpayers have already pumped more than €4bn over the past four years.
Christos Panagides, secretary-general of Etyk said in an interview with state radio CyBC that Hellenic will take about 1,100 of the co-op’s 2,650 staff, while another 900 will have to retire through a voluntary retirement scheme.
The rest, he said, will continue to work for the body that will remain in place after the deal to administer the bank’s non-performing loan portfolio, which accounts for roughly six tenths of the total.
In a statement released on Friday afternoon, following negotiations between the two sides, Hellenic said it “submitted today a final offer for the acquisition of certain assets and liabilities of CCB, which is subject, amongst other things, to a capital raise of the company.”
The statement followed an announcement from the CCB that it had received a revised acquisition proposal from Hellenic.
The CCB said it had convened a general meeting for Monday at 6.30pm to discuss and decide on the matter.
“Further to our May 14, 2018 announcement, the Cyprus Cooperative Bank confirms that it received a revised proposal from Hellenic Bank as part of the strategic transaction, and in accordance with the relevant invitation for demonstration of interest.”