* To surprise with Q1 2014 results *
The Bank of Cyprus, the island’s largest lender forced to the brink of bankruptcy as part of a multi-billion international bailout for the country, may dispose of its subsidiaries in Russia and Ukraine to reduce costs and return the bank to growth and profitability.
Senior banking sources said that the Uniastrum subsidiary, one of Russia’s 25 biggest banks, “is a big part of our group and we shouldn’t keep it” under the current economic conditions.
The bank has shrunk in size after the three Cypriot banks’ sizeable operations in Greece were handed over to Piraeus Bank as part of the bailout plan, while it has also taken over the second-largest Popular Laiki Bank that was rescued by the state but failed to avoid bankruptcy due to its huge exposure to Greek debt and spiraling losses.
Bank of Cyprus bought a controlling 80% stake in Uniastrum in October 2008 for 371 mln euros ($567 mln) but its return on investment has been disappointing with after-tax profits of around 10 mln euros a year. In 2008 it also took full control of AvtoZazbank in Ukraine, renamed Bank Kiprou, with a 44 branch network.
However, the deal at the time has come under scrutiny and President Nicos Anastasiades has ordered an investigation after a Central Bank-commissioned report by Alvarez and Marsal found the bank went ahead with the purchase despite misgivings in due diligence reports.
Meanwhile, a court in Kiev has frozen the ownership of the local units of Bank of Cyprus and Popular Laiki, making it impossible for them to sell off in the short term more than 240 mln euros ($314 mln) of assets held in Ukraine.
Laiki's Ukrainian subsidiary, PJSC Marfin Bank, had 59 branches. Bank of Cyprus took over some of Laiki's international businesses in Romania and the UK, but the Ukrainian operations remain part of Laiki, which is being wound down for the benefit of its creditors.
As regards the disposal of other assets in order to reduce overheads, senior management sources said the Bank of Cyprus operations in the U.K. will remain as part of the Group.
“We have no plans to sell and we need to be there. The international business unit there is doing very well,” the source said.
The bank is already in the process of closing down 20 branches in Cyprus and ten more by early July in an effort to consolidate the banking operations, branch network and staff of both Bank of Cyprus and Laiki. Further redundancies are being negotiated with the trade unions, following early retirement schemes last year and early 2013, while pay cuts may reach as high as 30%, according to media reports.
Although the bank will not return to profitability any time soon, the first quarter results for 2014 “will be surprising to all”, according to senior officials, expecting positive results from the implementation of the restructuring plans.
A new "Holding" division will be created to handle some of the bank’s disposable assets and any other non-banking business that have commercial value, such as 250 properties in Greece that have a market value of about 100 mln euros.
“This may attract property funds to invest in the portfolio held by the new division, but in any case we do not plan to become a real-estate company,” the source said.
Once the bank’s restructuring gets underway, it is believed that it will be easier to secure more liquidity assistance from the European Central Bank to compensate for the withdrawal of deposits by customers after strict bank controls were imposed as part of the bail-in plan that affected all unsecured deposits above 100,000 euros.
However, those depositors, currently represented by an army of lawyers, will also become the bank’s new shareholders after the equity for deposits programme recapitalised the bank and will want to have a say at the next shareholders’ meeting scheduled for some time in October.
