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Bank of Cyprus, the island’s biggest lender and one of four systemic banks that underwent Europe-wide capital stress tests over the weekend, is bracing for its second biggest shareholders’ meeting on November 20, when new investors led by fund manager Wilbur Ross are expected to take over.
The bank, that raised €1 bln two months ago and subsequently paid down part of the bailout debt imposed on now defunct Laiki Popular Bank, which it was forced to absorb last year, will almost entirely replace its present board, with chairman Christis Hasapis saying on Wednesday that we was stepping down at the AGM.
Last year, the bank held successive and fiery meetings after the bailout programme for Cyprus included a bail-in of some €4 bln by depositors-turned-shareholders, with the former owners of the bank diminished to less than 1% of today’s capital.
This resulted in several board shuffles and three CEOs in less than 14 months, with the incumbent John Hourican remaining in office for almost a year now and implementing a drastic restructuring that includes downsizing, the sale of non-core assets at home and overseas, as well as stringent plans to recover non-performing debts, especially from major clients who have funds but refuse to pay.
Perhaps the best way to reduce the bank’s dangerously high rate of NPLs, at present exceeding 50% of its loanbook, is the passage of a series of insolvency laws that will allow a smoother and transparent process to collect debts and boost the bank’s liquidity. This is a package of bills that the government has gone to extremes to convince the public that the primary homes of ordinary mortgage holders will be safeguarded.
Ross, whose group of investors pumped a total €400 mln in the bank’s capital raise, in addition to a €120 mln injection from the European Bank for Reconstruction and Development (EBRD), hopes to achieve a major turnaround in the bank’s mid- to long-term future, telling the Financial Mirror in a recent interview that he intended to take it “from resuscitation to growth.”
“I do not strip assets or liquidate companies. I try to breathe life back into them,” Ross had said, basing the future prospects of the bank on the recently discovered offshore energy resources, the privatisation of some €1.4 bln worth of state-owned companies, overseas expansion and the introduction of modern technologies, such as mobile banking.
On Sunday’s results of the European Central Bank stress tests, Ross said that the Bank of Cyprus “is undergoing an impressive metamorphosis” and has reduced its dependency on Emergency Liquidity Assistance from the European rescue funds by repaying €3.7 bln, has achieved a lot in deleveraging and the sale of non-core operations, and has reduced to profitability.
The three-scenario stress tests showed that Bank of Cyprus would have an asset quality rate, a basic index and adverse index of 11.5%, 11.6% and 5.8% of common equity Tier 1 (CET1) capital, with a surplus of €81 mln, if the present conditions remain until the end of 2016.
Thus, the November 20 AGM will most likely approve the Ross-team that will be headed by former Deutsche Bank CEO as non-executive chairman, Wilbur Ross and Vladimir Strzhalkovskiy as co-vice chairmen, and Arne Berggren (EBRD nominee), Maxim Goldman, Dr. Christodoulos Patsalides and Michalis Spanos as new board members, together with CEO Hourican and two senior bank executives, Marios Kalochoritis and Ioannis Zographakis.
The AGM will need to approve the consolidated financial statements for 2013, that had been pending due to the takeover of the now-defunct Laiki Bank and the loss of both banks’ Greek operations, as part of the bailout plan and writedown of toxic Greek government bonds.
The meeting’s agenda also includes retaining EY (Ernst & Young) as auditors, maintaining last year’s remuneration of board members (Chairman €68,000, Vice-Chairman €51,000, non-executive members €13,000 and committee members €2,100-6,300) and a host of special resolutions, such as board numbers to be reduced from 10-to-18 to 7-to-13, five board members comprising a quorum, and other decisions to allow for a smoother functioning of the bank.
Already, chairman Dr Christis Hassapis and board members Xanthos Vrachas and Andreas Yiasemides have announced their resignations and will not seek reelection.
There is also a proposal to remove Anton Smetanin, Anjelica Anshakova, Dmitry Chichikashvili, Eriskhan Kurazov, Adonis Papaconstantinou and Marinos Gialelis from the board and it is not yet known if they will seek reelection. In any case, official nominees wil be announced on November 15 and if Wilbur Ross’ team is unopposed, it will be installed during the AGM. Al board changes and suitability of new members will have to be approved by the Central Bank of Cyprus, having already been vetted as part of “The fitness and probity (Assessment Criteria) Directive” as well as the Guidelines of the European Banking Authority.
Meanwhile, the shares remain suspended with the Cyprus Securities and Exchange Commission renewing the suspension for a further month as of November 3 on the Cyprus Stock Exchange and the Athens Stock Exchange.
Once the AGM approves the consolidated financial statements for 2013, as well as the various capital increase and share issues, the stock may be viable for a return and give a new impetus to the near-dormant CSE, with an initial listing price of 24c, the value at which shares were sold in private placement to institutional investors.
