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— CoCos, covered bonds to raise €3.3 bln; Acquisitions in Greece in 2011-2012? —
Bank of Cyprus and Marfin Popular Bank, the island’s two main banks with a significant exposure to debt-riddled Greece and eastern Europe, plan to raise nearly 3.34 bln euros in bond issues this year.
Analysts believe these moves will safeguard the two banks’ liquidity concerns and give them each a war chest big enough to embark on a buying spree and possibly even take part in any upcoming mergers or acquisitions in Greece.
Although the CEOs of both banks have made it clear in recent days that they plan to proceed with “organic growth” in their own spheres of influence, they have also made statements about “geographic strategies” and “opportunities” if and where these may arise.
Bank of Cyprus Deputy Managing Director Yiannis Kypri will head a two-day road show in London this week, and will later head to Paris, Frankfurt and Zurich.
The bank aims to raise up to 1.342 bln euros from capital enhanced capital securities, an enhanced form of contingent convertible bonds (CoCos) that Credit Suisse and other European banks are considering to bolster their capital to meet tightening global regulation and as ammunition in times of stress.
Cypriot banks’ exposure to Greece was cited as a reason for Standard and Poor's cutting Cyprus's sovereign rating last November, and by Moody's last week. Fitch has also put Cyprus on review for a possible downgrade.
Kypri told the Financial Mirror that he expects the issue to take place in early May.
The bonds pay annual interest to investors but convert into equity if capital falls below a certain level. Existing shareholders will have priority rights to subscribe at a conversion rate of 3.30 euros at the end of each quarter, starting with September this year and ending in May 2016.
“There will be a mandatory conversion similar to CoCos, but also a voluntary conversion clause on the part of the holder,” he said.
There are about 818 mln euros worth in eligible securities for conversion, he added.
The bond issue would raise a further 524 mln euros from the market, he explained.
An EGM has been called to approve the issue for March 23, Kypri told Reuters.
With the conclusion of the issue the Bank said it expected its capital adequacy ratio to rise to 14% from its present 11.9% of assets, and its Tier 1 ratio to rise to 12.7%.
“The bank recognises that regulators across Europe require that banks have additional capital. Also, while the bank is in expansion mode it does not want this need to have additional capital to be an impediment to its growth model,” Kypri said.
Bank of Cyprus had successfully undertaken a rights issue amounting to 340 mln euros in September 2010.
MPB COVERED BONDS
Meanwhile, Marfin Popular Bank CEO Efthymios Bouloutas told an analysts briefing on Monday that the bank plans to boost its capital levels with the issue of covered bonds worth 2 bln euros some time this year, following the new covered bond law in Cyprus, enacted in December 2010.
Bouloutas said the bank plans to raise the funds directly from the market and not from the European Central Bank, where its borrowing has so far reached 7 bln euros.
He said that he wanted to see this exposure gradually reduced, starting from this year.
Bouloutas reiterated earlier statements that a consolidation in the Greek banking system was necessary with the creation of fewer but stronger financial institutions, with at least one deal by early 2012.
In an interview with Kathimerini, he noted that mergers in the Greek banking sector are unavoidable, while the NBG proposal for a ‘friendly’ merger with Alpha Bank seemed to be an interesting development, noting that mergers produce serious economies of scale and also bolster the international competitiveness of Greek banks.
Bouloutas also noted that the benefits from a reduction in deposit costs and operational synergies are large, while the proposed merger between NBG and Alpha shows the direction that the Greek banking sector will take going forward.
The CEO also noted that since 2008 deposit costs for banks are disproportionately high, the economy is in a state of recession, while the large reliance on ECB funding forms a thorny problem.
Finally, Bouloutas noted that over the next three years, it is likely that only three large financial institutions will operate in Greece, while some smaller banks will offer specialised services to specific sectors of the economy.
As regards Marfin Popular Bank, Bouloutas said that two strategic aims were achieved in the first quarter of 2011 – the capital increase through the 488 mln euro rights issue and the sale of 85% of its Australian subsidiary to Bank of Beirut for an additional cash benefit of 104.3 mln euros.
The bank’s Tier I capital ratio now stand at 12.0%, up from 9.1% at the end of 2009, while the capital adequacy levels have risen from 11.5% to 13.7%, positioning MPB among the best capitalised banks in the Eurozone
“The successful completion of our capital increase, the largest ever executed by a CSE listed company, in combination with the recent disposal of our Australian subsidiary, have further improved our capital position, boosting our tier I and total regulatory capital to 3.3 bln euros and 3.7 bln, respectively,” Bouloutas said.
“The recent capital-enhancing exercises enable the Group to fully align its capital structure to its strategic business objectives, as well as to the forthcoming Basel III capital requirements, thus dramatically improving its long-term growth potential,” he concluded.
