Bank of Cyprus plans to sell its Russian operation as part of a restructuring launched by its new chief executive John Hourican to shore up the lender’s capital and refocus on its domestic market a year after it collapsed, according to the Financial Times.
The report follows a press briefing in Nicosia on first quarter results on Friday where the bank saw a turnaround with €31 mln in after-tax profits from a 130 mln loss in the previous quarter.
However, during the briefing senior bank officials gave conflicting justifications for the drop in deposits in the Russian subsidiary Uniastrum that fell from €1.15 bln a year ago to 767 mln at the end of March this year, with one argument being that this was related to the crisis in Ukraine(!) while another more believable reason was the Russian central bank’s stricter controls over small-cap banks.
In either case, George Peskov, junior shareholder and co-founder of Uniastrum, had told the Financial Mirror in earlier reports that he had approached the present and former Bank of Cyprus boards with the intention of discussing a sale-back.
Bank of Cyprus paid $576m to buy 80% stake of Uniastrum from its founders who retain 20%. The Russian operation accounts for more than half of Bank of Cyprus’s 300 branches and a third of its 7,700 staff.
Hourican, who joined Bank of Cyprus last year after quitting as head of Royal Bank of Scotland’s investment bank, told the Financial Times that it would “seek a new owner” for Uniastrum, the lossmaking Russian lender it bought in 2008.
Hourican said: “Bank of Cyprus has no role being a retail bank in Russia as it doesn’t really help us at our main Cyprus bank – it is a different brand and has a very different clientele.”
In December, Hourican had a different view, suggesting that the bank would need to offload its non-core assets in order to reduce its exposure and debt levels, something it has achieved so far by selling its risky branch network in Ukraine, an insurance portfolio in Serbia, a stake in Romania’s Banca Transilvania, and the remnants of insurance portfolios and funds it still owned in Greece, despite giving up its entire Greek branch network to Piraeus Bank as part of last year’s bailout deal.
“I have introduced a scorched earth policy on foreign units,” said Hourican. “We are repatriating any overseas stuff that really doesn’t help the core bank and that only eats up capital,” he told the FT.
But on Friday, he said that advisors HSBC were still considering all options on a project-by-project basis.
These asset sales have so far lifted the bank’s common equity tier one ratio to a relatively healthy 10.6 at the end of March, but the nagging problem of non-performing loans remained unresolved as large corporates were unwilling to settle their past dues, with small and retail loan-holders being squeezed instead.
Hourican said both he and the entire management empathised with the problems and pressures faced by retail customers, while another senior manager said that at least €247 mln worth of NPLs, mostly from large corporates, had been recovered in the first quarter of this year.
The bank also plans to sell a £300 mln portfolio of UK corporate loans and mortgages that it inherited from its takeover of its failed local rival Laiki Bank last year, but denied SkyNews reports that it was planning a flotation of shares on the London stock market.
The FT report added that Hourican faces a long list of challenges. Two-fifths of Bank of Cyprus’s liabilities come from central bank funding with €11.1 bln of emergency liquidity assistance.
Its shares have been suspended on the Athens and Nicosia stock exchanges since last year’s bailout, though they are expected to resume trading this year. Customers continue to withdraw money as domestic capital controls are lifted and its total deposits shrank from €15 bln to €14.1 bln in the first three months of the year, the FT report concluded.