The move that would mark a rehabilitation of the euro zone’s first bank to recapitalise using depositors’ cash, the banker told Reuters.
On the brink of collapse only a little more than a year ago, BoC has just attracted a €1b equity investment via a private placement.
“The bank needed a ‘turn the page moment’,” Hourican told Reuters in an interview from Nicosia. “This is the hardest thing we needed to do to put the company back on its footing for recovery.”
Hourican, formerly head of Royal Bank of Scotland’s investment bank, took over as chief executive in November and is overseeing the bank’s restructuring. Its bad loans hover at close to 50% of its total loan book, and it is heavily reliant on the central bank for funding.
The CEO told Reuters securing the €1b equity investment would help to speed up the restructuring and revealed that the bank is already ready to return to the debt markets.
It aims to raise between €500 million and €1b via a covered bond, a kind of debt that has recourse against particular assets of the bank, and also against the bank itself.
“We’d like to be doing that at some point during September, probably late September,” he said. “I wouldn’t call the time perfectly yet, but in the very near future.” He said the bank is targeting interest rates on the bonds “in the high threes” implying a rate between 3.7% and 3.99%.
Hourican said that the bank would continue to deleverage so it is in a stronger position to lend more to the local economy. It is already better able to do this as its core Tier 1 capital will rise to 15.1% from 10.6% because of the equity raising, putting the bank ahead of most EU peers. A €300m sale of a London loan book Bank of Cyprus inherited from Laiki is the next step, and a deal could be agreed within a week, he said.
The bank is also exploring options to sell some non-performing loans. Hourican said the bank had concluded that separating those bad loans into a ‘bad bank’ was not feasible at this point because it was too costly. Hourican said that the bank’s new investors had a “three to five year” horizon on their Bank of Cyprus holding since there was a lot of work to be done.
Hourican said they would want “a seat or two” on the board. “We’ve very happy to accommodate that.” The most prominent of the new investors is Wilbur Ross, who made his name and his money by resolving bankruptcies, is known for taking punts on the euro zone’s banking recovery. His earliest – a bet of €290m on the Bank of Ireland in 2011 at the height of the crisis – made him a profit of €500m when he sold his stake earlier this year.
Ross said in a statement the investors he represented were committed to buying about 40% of the placement. Hourican declined to name them.
Existing shareholders will be allowed to buy €200m of the €1b in new equity. If they do not take that up, the new investors will hold 46% of the bank. If they do, the new investors will pay less, and own less. The Bank of Cyprus will subsequently make €100 million in new shares available to both new and existing shareholders.
Source: Cyprus Mail
