Xinhua, Nicosia :
Since Bank of Cyprus (BOC) was established 115 years ago as a small savings bank it was in actual fact and conception an all Cypriot enterprise.
Its logo, an ancient copper coin dating 2,300 years back inscribed in Greek Koino Kyprion, meaning “common to all Cypriots”, helped cement that conception.
After all, up to last year its entire stock belonged to about 87,000 Cypriot shareholders. But this is not the case any more.
The bank is not Koino Kyprion any more. It has become international, Archbishop Chrysostomos, the leader of the Cypriot Greek Orthodox Church, one of the largest former shareholders of Bank of Cyprus lamented.
His remarks reflected an entirely new situation, in which close to 50 percent of BOC’s shares are or will soon be owned by the most improbable of combinations-Russian and American magnates joining in a common effort to again prop up the once powerful lender.
The change came about abruptly and forcibly in March, 2013, when the Eurogroup and the International Monetary Fund ordered what they termed the “resolution” of Bank of Cyprus as part of a 10 billion euros (13.4 billion U.S. dollars) bailout of Cyprus.
The resolution involved the shrinkage of the bank’s operations, which amounted to about eight times the 17.5 billion euros annual turn-over of the Cypriot economy, but most importantly the world’s first bail-in.
Cyprus’s international lenders ordered the bank to convert large uninsured deposits of over 100,000 euros into bank stock to recapitalize, after it incurred considerable losses due to the holding of a large amount of Greek debt which was written down by about 75 percent in 2012.
Several Russian oligarchs, as businessmen who came up with fast-acquired huge wealth following the dissolution of the Soviet Union in the 1990s are called, were among those who stashed their money in Bank of Cyprus, lured by high interest rates and a low corporate tax.
Large depositors of the bank, including the Russians, unwillingly became the new owners of BOC holding a considerable chunk of its 4.7 billion new shares, as old shares were devalued by about 100 times to just 0.01 euro each. Six Russians were elected to the 16-member Board of Directors in September, 2013, one of them serving as Vice-Chairman.
The Americans are stepping into BOC right now. After the bank invited bids to raise its tier-1 capital by 1 billion euros (from 10.6 to 16.1 percent) ahead of European bank stress tests, it was announced that investors represented by American magnate Wilbur R. Ross will purchase whatever is left of the new issue amount, after existing shareholders buy 200 million euros worth of shares and the European Bank for Reconstruction and Development (EBRD) an additional 120 billion euro worth of shares.
After the complex process is approved by an extraordinary meeting of shareholders in August, WLR & Co. LLC and other investors attracted by his investment fund are expected to own 400 million euro worth of the 4.17 billion shares to be issued.
This amount comes to about 19 percent of the value of the post increase shares of the bank which will amount to 8.87 billion worth 2.12 billion euros.
This makes the Ross group the biggest single shareholder of Bank of Cyprus, supplanting the 18 percent share of depositors of former Laiki Bank which was wound down and folded into Bank of Cyprus. This share, which is still managed by an administrator appointed by the Central Bank of Cyprus, will be diluted to about 11 percent.
EBRD share will amount to about 5 percent of the total stock.
A source familiar with the discussion inside the Board of Directors of BOC described the reaction of Russian shareholders as mixed?.
They were saddened because their share in the bank’s stock will be diluted by close to 40 percent. On the other hand, with the participation of WLR group and EBRD and the expected profitability of the bank they have a prospect of recovering their impaired deposits,” the source said.
Stavros Zenos, a professor of economics and a former Dean of University of Cyprus, said WLR bought 290 million euros worth of shares of the Bank of Ireland in 2011 and sold his stake earlier this year ripping a profit of 500 million euros, after the original 0.10 euros share value went up three times to 0.30 euro per share.
There will also be a better balance of shareholders and a better cooperation between the Board of Directors and the bank’s management, which played a key role in securing new investors, Zenios said.
Bank of Cyprus CEO, Irish banker John Hourican, has said he expected the new investors to seek ?one or two seats? on the board, adding that this demand will be most probably accommodated.
ERBD has said that one of its priorities as active shareholder will be to improve corporate governance of the bank. This is something the lender’s management and also economists keeping a watch on the Cypriot economy are expecting.
WLR & Co. LLC has a reputation of specializing in leveraged buyouts and distressed businesses. Ross himself said that he was certain about both Bank of Cyprus and the Cypriot economy recovering after their demise as a result of the European crisis.
However, Zenios cautioned against going for the big gains by the bank too soon, because it is a systemic lender and its actions will have an impact on the entire economy.
He said he is certain that foreign investors will sell off their shares when they consider the price would be right.
That is the danger point. When the big investors will go the bank has to be able to stand on its feet alone, Zenios said. (1 euro = 1.34 U.S. dollars)
