* Russians ready to invest or escape Putin’s clampdown? *
The continued downgrades of the Cyprus banking system, made worse by the local banks’ exposure to Greek government bonds (GGBs) and the deteriorating fiscal situation in both countries, is putting the squeeze on shareholders who fear some banks could face collapse or become takeover targets, probably from Russian investors.
Part of the solution may come from further north as the growing resentment to Prime Minister Vladimir Putin’s continued clampdown on Russian overseas investments is forcing many to seek new vessels for their holdings and may help raise more interest in Cypriot assets.
Already, the two dominant lenders, Bank of Cyprus and Marfin Popular Bank, are feeling the heat from pressures to reveal their capital boosting plans by January 20 and raise some 3.5 bln euros in fresh capital by next June to meet regulators' capital buffer requirements.
The Central Bank Governor has reiterated on several occasions that the main issue is rebuilding the credibility of the Cypriot banking sector while slashing the fiscal deficit by reducing public spending and abolishing the antiquated inflation-based wage indexation system, while maintaining corporate and investment taxes at present levels in order not to lose the image of a business centre.
Bank shares have lost on average 75% of their value in the past year and shareholders are getting desperate as they watch their portfolios diminish. On the other hand, deposits of up to 100,000 euros are guaranteed, giving a sense of security to consumers, while bankers and trade unions have agreed to a package of cost-cutting measures that include a freeze on new hirings, lowering wages and withholding bonuses for two years, saving the banks some 32 mln euros.
NO RISK
Banking officials have reassured the Financial Mirror that the prospect of collapse is too distant for Cypriot banks and that even if this were to happen, the European Central Bank would intervene and activate the Emergency Liquidity Assistance mechanism to ensure liquidity.
This happened in the case of Ireland where the central bank initiated safety measures and ensured that all customer deposits were safe.
However, the militant trade union Etyk sees itself as the bearer of bad news warns that a bank may collapse while another could be taken over by foreign investors.
In a circular sent to its 11,000 members, the union said that the problem is not only the 50% haircut of GGBs but also writing off bad loans and securities.
With their current deposits-to-loans ratio, the island’s main banks seem to pass the European Central Bank’s stress tests, while new issues such as covered bonds and the disposal of overseas assets will strengthen their posits even further.
M&A DEALS
Banking sources suggest that any merger or takeover talks could begin in summer, soon after the ECB’s deadlines for installing capital buffers. One of the oldest rumours that persistently returns every year is that of the Bank of Cyprus and the smaller Hellenic Bank, where the common denominator is the hard-hit Church of Cyprus that has a say in the larger bank and controls nearly 25% of the smaller one.
Bank of Cyprus has implemented a strategy of organic growth, with the exception of its colossal investment in Russia to buy the Uniastrum bank network, while Hellenic Bank has maintained a conservative, yet healthy policy of securing all loans with a higher ratio of deposits, having evaded the GGB crisis by taking on a mere 110 mln euros in public debt. Economies of scale could only achieved at home, as Bank of Cyprus has established itself as a Top Five bank in Greece, where Hellenic did not succeed in achieving healthy targets.
On the other hand, shareholders want some of the other two-way and three-way M&As revived, such as the time when former Marfin Laiki boss Andreas Vgenopoulos wanted the two to merge and bring in Piraeus Bank or the island’s biggest lender looking to a deal with National Bank of Greece.
Apart from the Church, however, any deal involving Bank of Cyprus must also get the nod from the Central Bank and mega shareholder Dimitriy Rybolovlev who controls a near-10% stake, bought at a much higher price than where the share has tumbled to in recent months.
In any case, following the Cyprus government’s submission to a Russian sovereign loan of 2.5 bln euros, more local assets are expected to be picked up by investors or even handed over on a silver plate with Russian companies already stating keen interest to participate in the upcoming launch of the second licensing round for offshore LNG exploration over the next few months.
The only local bank that recently changed hands is USB that was taken over by BLC Bank of Lebanon, while all Greek banks are wholly owned subsidiaries (National Bank of Greece, Alpha, Emporiki, EFG Eurobank), as are a number of Middle East, French and Russian banks that morphed from offshore units to fully-fledged banks with small local operations.
