Bank of Cyprus Q1 falls 13% on state levy, provisions; CoCos misses target

 * Maintains guidance for full year *

Bank of Cyprus, the island’s second largest lender, posted a 13% drop in first quarter net profit as it jacked up provisioning costs and paid a new levy to the cash-strapped government.
The bank repeated expectations that net profit for the full year would be similar to 2010's 306 mln euros.
First quarter net profit was 71 mln euros. Provisions rose 7% while tax in Cyprus rose 150% following a 5 mln euro payment to the government.
Cyprus imposed a 0.095% tax on deposits of banking institutions this year. Part of the proceeds will go to a bank stability fund with the rest going to the state, struggling to keep a lid on a rising public deficit.
Pre-tax profit was up 2% to 93 mln euros, the bank said. Net interest income rose 14% to 276 mln euros.
This follows a somewhat disappointing capital building issue last week. Bank of Cyprus said on Friday it had received subscriptions worth around 890 mln euros ($1.28 bln) for its enhanced convertible capital securities (CoCos) issue, falling short of its target up to 1.34 bln euros to bolster its capital adequacy ratios.
The issue raised the Bank's pro forma total capital adequacy ratio to 12.3%, and its Tier 1 ratio to 11.9%, it said.
Subscriptions totalling 696 mln euros were in the form of exchange of existing eligible securities, Bank of Cyprus said.
Under terms of the issue, the capital securities will convert into shares if the bank's core Tier 1 capital falls below 5%. The bonds can also be converted into shares at a 20% premium to the current share price at any point in the next five years.
The bank says its securities are an enhanced form of contingent convertible bonds. The instrument is being considered by several banks to provide an extra buffer if capital is eroded.
The bonds pay an annual interest to investors – in Bank of Cyprus's case 6.50% – but convert into equity if capital falls below a certain level.