Bank of Cyprus shareholders gave an overwhelming vote of support on Thursday to the bank’s efforts to seek new investors and raise a further €1 bln that will boost its capital safely beyond EU-wide stress tests in les than two months.
A large turnout of old shareholders, who saw their stock diminished to less than 1% a year ago when the Eurogroup imposed an untested ‘bail-in’ transforming depositors into new shareholders, used the meeting to vent their anger towards all directions.
A number of former executives, shareholders, lawyers and fund managers expressed their frustration that their stocks were diluted and that no authority had listened to suggestions on how to mend the problem as best as possible.
Despite the tension in the room, the extraordinary meeting called to approve the capital increase voted 87.5% in favour of the proposal and 12.5% rejected it.
The bank’s management, board members and other advisors tried to keep the meeting in order, by giving what seemed to be frank replies to as many of the questions possible.
But perhaps the defining moment came when CEO John Hourican gave a heartfelt response to persistent questions about debt collection and foreclosure of mortgaged properties, appreciated by the majority of the audience.
“Being a foreigner myself in Cyprus, I must assure you that the aim is not to sell Cyprus assets to foreigners. But we need foreigners to invest in the country which will make the economy much stronger,” he told the disgruntled shareholders.
“We have to change this attitude and learn from the negative experiences. The idea that someone will foreclose on everything to make a quick profit is crazy. We must find the right potential to ensure the future of the Bank of Cyprus,” Hourican concluded.
The EGM approval paves the way to the bank’s capital increased by a total €1.1 bln from local and foreign investors, fund managers and institutionals.
Already, venture capitalist Wilbur Ross has pledged to inject about €400 mln into the bank and the European Bank for Reconstruction and Development a further €120 mln, with existing shareholders, old and new, subscribing to a further €104 mln, all at the book price of 24c a share.
In earlier statements, when the bank announced a total of €81 mln in post-tax profits for the first half (Q1: €31 mln), Hourican had said that approval of the capital increase would boost the bank’s liquidity ratios far beyond the requirements of the European Banking Authority’s stress-test scenarios.
The Group’s capital position was strengthened with Core Equity Tier 1 ratio increased from 10.5% in end-December to 11.3% as at June 30. Combined with Thursday’s decision on the €1 bln capital increase, the bank’s Core Equity Tier 1 ratio is now expected to increase to 15.6% (transitional basis) and 15.1% (fully-loaded basis) making it one of the best capitalised banks in Europe.
The board will meet on Friday to approve the audited first-half results, after which we will probably see changes in the board structure, with Russian and Ukrainian shareholders seeing their near-50% combined stake diluted to half and the new investors seeking a major say in the bank’s future.
Hourican and his 500-strong recovery team are already making some progress in collecting or cashing-in collateral from non-performing loans of major clients who have so far refused to or evaded repaying their loans, while the bank continues to sell of its overseas and non-core assets.
During the EGM, many spoke of a lack of money supply in the market and that Bank of Cyprus, as the biggest lender, should contribute most to this liquidity crunch to get SMEs and the economy in general up and running again.
In what may have been his last shareholders’ meeting, chairman Christis Hassapis said that he too had lost a fortune and an inheritance of shares during last year’s writedown.
As regards the bank’s operations, he agreed with the audience that the bank ought to pay more attention to delays in serving customers and even suggested that some branches may even operate in afternoons in order to meet customers’ needs.
There are, Hassapis admitted, delays in processing new loans, but none that would dramatically boost the economy, as other bank officials stated that a total of €160 mln had been granted in new loans to SMEs and individuals.
Hourican said in his opening statements at the EGM that the bank’s image today is far batter than what it was a year ago, before it was humiliated being the only bank and the only EU state to impose the bail-in on depositors for the recapitalisation of the bank and to absorb the now defunct Laiki Popular.
“Cyprus needs a clear legal framework that will encourage the safe accumulation of deposits and their conversion to long-term lending, allowing borrowers to tap into their future earnings sooner, thus leading to economic prosperity,” he said.
But Hourican also warned that “the country needs a strong, clear-cut and simple legislation that will impose the simple rule of ‘if you borrow money, then you have to pay it back’.”
He blamed the existing law on foreclosures as leading to a rise in non-performing loans, last estimated at just under 50% of the bank’s loanbook.
The island’s political parties are being stubborn by refusing to pass a revised bill on foreclosures that is conditional to Cyprus receiving the next tranche of about €453 mln in bailout money from the Troika of international lenders. If the bill is not passed by next Monday, Cyprus would seem to default on its memorandum of understanding with the IMB, the European Commission and the European Central Bank for the bailout of about €10 bln, with just over half banked in the past year.
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