* Banking system will also see the bad debts mountain contained
Hellenic Bank’s takeover of the ‘good assets’ of troubled Cyprus Co-op Bank, the state-owned former cooperatively owned lender, is a good deal for the buyer, according to an analyst.
The deal will also involve the restructure of Hellenic as new investors pump more money into it.
Ending months of nightmare scenarios, reminiscent of the days when Laiki Bank collapsed in 2012 and was forcibly absorbed into Bank of Cyprus the following year, malicious rumours spread about the stability of the Co-op forcing the state to guarantee some EUR 2.5 bln of non-performing loans to prevent further capital flight.
By December 2017 alone, it is estimated that about EUR 1 bln of deposits were taken out of the Co-op, most of which returned in 2018.
The state guarantee followed the initial capital injection of EUR 1.67 bln in the Co-op making the government its biggest shareholder.
A deal was made possible after Hellenic had raised an extra EUR 150 mln with a capital increase, enabling the government to hand over the bank’s good assets.
Initially it was thought HB required EUR 450-500 mln, but the amount dropped significantly after government plans to issue a supplementary bond issue to facilitate the deal.
Details of the agreement have not been made public, but according to sources close to the procedure, the state will guarantee loans of EUR 800 mln through an Asset Protection Scheme.
The Co-op Bank announced late on Friday that “the board has called an extraordinary meeting of shareholders in order to review the (Hellenic) proposal and to take the relevant decision.” The EGM has been scheduled for 6.30 pm on Monday, June 18.
While the deal appears to be a good one for HB, leading economist and Head of the Bank of Cyprus Economic Research Department Ioannis Tirkides, said that the takeover of the CCB’s good asset portfolio should prove beneficial for the island’s banking system, aid competition and hence consumers.
Furthermore, the economist said, the agreement with the government will see the creation of an NPL managing body which will absorb a large chunk of the bad assets of the banking system, thus helping with their resolution.
“This is a step that it is now possible to take despite the additional debt burden that it creates. The debt will increase but the underlying debt dynamics will not change. The declining trend will remain,” said Tirkides.
He said the biggest part of the remaining NPL problem is a legacy problem and cannot be handled without an adequate and better balanced regulatory framework.
“It is not a matter of protecting the most vulnerable. That we will do. It is a matter of an effective and well-balanced framework that promotes the resolution of non-performing loans.”
Hellenic will be handling the country’s biggest deposit portfolio amounting to EUR 9-10 bln, coupled with acquiring a portfolio of EUR 4.5 bln in good loans, which will see its NPL ratio drop significantly.
It is expected that Altamira, which had managed part of CCB’s NPLs, will play a role in managing the NPLs.
The NPL managing body is to initially take over the hefty EUR 6.3 bln NPL portfolio belonging to the CCB.
To this end, the Finance Ministry is in daily contact with the European Commission's Directorate-General for Competition, to ensure the necessary approvals. The Commission requested involvement of private funds in the body.
Deal almost crashed
The deal almost went up in smoke on Friday morning, as Hellenic had not communicated, as agreed, their new shareholder structure to the government. Uncertainty over whether the bank had raised the money needed remained until the cabinet meeting later in the day, called to rubber-stamp the deal.
The week saw Hellenic Bank’s board meet for hours almost every day to decide on the next moves and how the bank is to prepare its infrastructure ahead of completing the transaction.
With the final touches been made, all that was left was the approval of the contributing parties to participate in the EUR 150 mln capital increase needed for the Co-op deal to go through.
Reportedly, the board was searching for a formula on how to cover the capital increase with some of the existing shareholders holding back.
According to sources close to the procedure quoted by Phileleftheros daily, the investment fund J.C. Flowers withdrew its interest to participate in HB’s new shareholder structure on Thursday.
According to the same sources, the fund did not approve of the agreement with the government and had reservations about the ‘day after’.
Reportedly, Demetra Investment, one of the bank’s existing shareholders, is one of the contributors in the capital raise, investing EUR 50 mln with its stake reaching 29.3% from the current 10%.
Pimco is also expected to invest EUR 50 mln with a 19% stakeholding. It was not known who invested the other EUR 50 mln needed.
Meanwhile, two of HB’s existing shareholders did not seem willing to participate in the capital increase. Wargaming, with 24.9% of shares and the investment fund Third Point (26.2%) did not show interest, which is expected to lead to their share percentage being halved.
Reportedly, other investment funds, such as Atlas, which had expressed interest in participating in the new share structure, laid down tough preconditions.
Hellenic had announced that any increase in its share capital was subject to the approval of its shareholders. The bank has scheduled an annual general meeting of shareholders for July 11.
President meets unions
President Anastasiades met with Co-op union representative to discuss the future of CCB’s employees who total 2,667.
Reportedly, around 1,100 will join the Hellenic Bank workforce, 100 employees will be transferred to Altamira, where 350 have already been moved. About 250 employees of the Co-operative will go to the NPL Management Body to be created, while efforts will be made to convince some 900-1000 employees to take a voluntarily retirement package, with each employee receiving a maximum of EUR 100,000 in compensation.
In what is interpreted as another intervention from the state to facilitate the sale of the CCB’s good assets, the Social Insurance Fund (SSF) has more than doubled its deposits at the Co-op during the first quarter of 2018. Even though the state receives a lower interest rate than the one offered by other commercial banks, the SIF has increased its deposits at the CCB from EUR 11.9 mln to EUR 26.5 mln.
