* Energy future, privatisations very promising
* New business and mobile banking
* Decisions on overseas footprint
* Must exit ELA as soon as possible
Wilbur L Ross Jr, the self-made billionaire specialising in leveraged buyouts who is pumping 400 mln euros into Bank of Cyprus, is confident that the island’s economy will get a major boost from the newly-found energy sector that will drive the bank’s recovery.
In an interview with the Financial Mirror, he said that he is bringing ex-Deutsche Bank CEO Josef Ackermann on board as the proposed new non-executive chairman because of his vast experience in European banking and his knowledge of the Russian market.
“Dr. Ackermann brings to the bank a unique combination of huge personal expertise in banking and an unparalleled set of relationships both within Russia and in many other countries,” he said, adding that “both aspects will be invaluable to the bank as it emerges from the resuscitation stage to the growth phase.”
Ross, who manages some US$10 bln in equity funds, is as concerned as anyone about the bank’s current state, having raised just over 1 bln euros in fresh capital, but with the overhang of the non-performing loans still looming ahead.
Once the loan portfolio has been stabilised, he said, the bank will need strategies for growing deposits, loans and fee income, as well as for developing mobile banking.
“There also will be strategic decisions to be made about keeping and expanding or divesting its remaining overseas footprint, including its affiliate in Russia and Dr. Ackermann's views on all of these topics will be helpful,” Ross said.
As to Cyprus itself, “I believe that the beaches and tourist infrastructure, combined with buildings and ruins from various periods of Cyprus' complex history and strategic geography will attract increasing amounts of international visitors.”
Pointing to the tourism revenue prospects that lie ahead, Ross said that “the privatisation of [Cyprus Airways] and the seaports will facilitate this growth, as will the pending tender for a luxury casino and hotel development. Similarly the pending privatisations of the telecom and electric utility companies will both make the economy more competitive with other countries.”
ENERGY PROSPECTS
But what makes the island and its biggest bank most attractive to investors such as Wilbur Ross is the newly-found energy resources lying under the seabed between Cyprus and Israel.
“There is also the possibility of long term resolution of the issues with Turkey, but in my opinion there is a phenomenon already underway that is likely to be transformative for the economy and that is the apparently huge amount of natural gas offshore Cyprus. Exploration is getting underway by several major companies and if they prove even a small fraction of the estimated reserves, Cyprus’ economy will have a third leg that dwarfs the two existing ones,” Ross told the Financial Mirror.
Meanwhile, he believes that the business services sector “is performing somewhat better than had been expected.”
He pointed to the fact that “new entities continue to be incorporated in Cyprus and there is a continuing inflow of deposits from abroad, including from some parties who had the great misfortune to be bailed in. Cyprus has the highest ratio of college graduates-to-workforce of any OECD country and therefore has very sophisticated accounting, legal, marketing and general management talent. It also has favourable tax treaties with 28 countries and has continued to add them post crisis.”
As regards Bank of Cyprus paying down some 800 mln euros of the Emergency Liquidity Assistance (ELA) and lowering the exposure to that facility, instead of re-investing that amount to boost the local economy, Ross concurs that it was the right move.
EXIT FROM ELA
“The bank as a policy matter would like to exit from them [the ELA] as soon as possible, but is under no contractual obligation to do so. The bank also has the liquidity and a 15.6% Tier 1 capital ratio, with no AT1, so it is well positioned to meet the borrowing needs of any credit worthy customer.”
Ross explained that historically, Bank of Cyprus had far more deposits than loans, the reverse of most European banks.
“As to geography, the board will develop a long term plan as to what the bank's map will look like in terms of its majority-owned bank in Russia [Uniastrum]. The real question is how best to meet the banking needs of its current and prospective customers in a profitable manner.”
On a more personal note, Wilbur Ross, responded to the various adjectives attributed to his name, mostly because of the often painful strategies to restructure companies or turn them around to profitability.
“As to what terms people apply to me, I do not strip assets or liquidate companies. I try to breathe life back into them. Research my record and you will see the proof of that statement.”
After all, he helped rescue Bank of Ireland and tripled the return on investment, an exercise many hope he will achieve in Cyprus too.
