One of the two founders of the Bank of Cyprus’ Russian arm, Uniastrum, believes it is time for the subsidiary to be divested, a solution that would probably allow for the bank to focus on its core business at home and rid itself of the “burden” of managing an international franchise larger than its home network.
But with everything that has troubled the island’s largest lender, the absence of a CEO and a diverse board, where a third of members are from Russia, has not produced any indication suggesting how the bank should proceed. It is also unclear if the six Russian board directors will agree to letting Uniastrum go, as they need to safeguard their own investment in the Group.
The interim CEO, Christos Sorotos, made it clear when he took over at the end of May that the Group needed to get rid of a lot of its unproductive assets at home and abroad, which is why he wanted to set up a separate ‘Asset Fund’ that would undertake responsibility for the sale or management of such properties.
George Piskov, co-founder and Chairman of Uniastrum Bank, admits that the bank has been in decline mainly because of the lack of vision and support from the Bank of Cyprus.
He said that the leadership in Nicosia has been unable to develop this asset that has been reduced to a network of 185 branches, just over 3,000 staff, and languishing in the top 40 of banks in Russia in terms of deposits and loans, far worse than when Bank of Cyprus took it over in November 2008.
Unable to say if he or his partner, Gagik Zakaryan, would be interested to buy back the 80% held by Bank of Cyprus, Piskov said that only when a concrete decision is taken that “this asset is for sale” will they discuss such an option.
“It is realistic to think that Uniastrum can be sold, even though the market itself is illiquid and the valuation is not as rich as in pre-2008 terms,” Piskov told the Financial Mirror in an interview.
“We met Sorotos once and we made it very clear to him that we will support the idea of divestment as soon as possible.”
He said that especially after the banking crisis erupted in March, “the decision making process (where necessary), has been painfully slow.”
However, judging from the outcome of the panel inquiry into the banking sector, where past executives hailed the investment into Russia at the time, Piskov seems disappointed that the truth has not been presented in a balanced manner.
As regards the allegations that some 700 mln euros was pumped into Uniastrum and that it all went down the drain, Piskov said that the maximum of debt that Uniastrum carried from BOCY was 17 bln Roubles (390 mln euros), which has now been reduced to 6 bln Roubles (138 mln euros).
“This was part of the strategic plan, when the acquisition took place, to expand into the SME lending market by injecting liquidity which was much cheaper than what was available in Russia.”
“Uniastrum has been returning cash,” he said, adding that it is “a solid bank, although not profitable at the moment. The brand is very strong and I can only hope it will be divested as soon as possible, and transferred into more capable hands.”
Now is the time for Uniastrum to expand further, especially since the crisis in Russia ended in 2009 and the economy has returned to growth, he explained.
So, what went wrong?
“Perhaps it was the environment in Cyprus and Greece or a misalignment of credit policies. When a company expands abroad, it needs to adjust to local preferences,” Piskov said.
“I was able to express my concerns at the Uniastrum board, but never at the BOCY board level.”
Piskov said that the investment by Bank of Cyprus was not a haphazard one.
“I had insisted on a due diligence report about Uniastrum’s expansions prospects with exhaustive information about details of the loan books, strategy, retail offices, etc.
“In 2008 I made a presentation during the negotiation process to the entire (BOCY) board, where every board member was present. Since then, nobody never expressed any thoughts or concerns.”
According to the minutes and 180-page conclusions of the inquiry panel into the demise of the banking sector, Charilaos Stavrakis opposed the purchase of Uniastrum and regarded it at a very high price, both when he was a senior BOCY executive and later as Finance Minister.
Uniastrum was on an ambitious plan to expand across Russia, all the way to Siberia, and had accumulated huge debts, the panel concluded, while former board member Evdokimos Xenophontos said: “There was no transparency regarding the deal, the board was ill-informed. It was a wrong deal,” Uniastrum presently owes 700 mln to the parent, he added.
On the other hand, the last chairman prior to the restructuring, Andreas Artemis, said that he agreed with the deal at the time and that Uniastrum needed 700 mln euros to fund its operations. “The problem was with bad loans and non-performing loans (NPLs),” he said, concluding that “remedies exist”.
