“We believe that the trend in non-performing loans is starting to become increasingly favourable, and that’s the only big problem that the bank has had,” Ross, who is also vice chairman of the island’s largest lender, said in a telephone interview on Sunday.
“The Cyprus economy has turned around very well. Tourism and everything is going fine and the bank, notwithstanding the non-performing loan situation has been consistently profitable and has been quite profitable on a pre-provision basis,” he added.
Bank of Cyprus saw its non-performing loan stock drop to €14.8bn in June from almost €15bn in December 2014, after peaking at €15.2bn in March. The non-performing loan ratio in June was 62% of gross loans, as per European Banking Authority definition.
“The bank has been actually performing quite well,” after doing some necessary “housekeeping” in the past months by divesting of assets in Eastern Europe including its former Russian unit Uniastrum, Ross said. “It now appears to be behind us, and between that, the economy improving and the new legal system, we do think the country and therefore the bank should be in an increasingly good shape going forward”.
Ross’s comments came days after the WLR Recovery Fund V.L.P, purchased almost 6.4 million Bank of Cyprus shares at a price of €0.1662 per share, which is almost two thirds of the per share price of his initial placement in the bank. In August 2014, Ross and a group of investors participated with a total of €400m in the lender’s capital increase.
Exchange listing & liquidity
Ross who invests in troubled industries and made a profit from investing in, reorganising and selling his stake in Bank of Ireland in 2014 said that “we found it attractive to buy this block that just came across the other day”.
Bank of Cyprus’s share closed at €0.168 on Monday, which was 1.2% below Friday’s closing.
The U.S. investor said that the current discount on the Bank of Cyprus’s stock is related to its Athens Stock Exchange listing which saw share prices plummet in recent months amid uncertainty over Greece’s ability to successfully negotiate and implement reforms necessary to remain part of the euro area.
“We think the stock has been burdened by the fact that the trades are in Cyprus and in Athens,” Ross said.
He added that the bank already divested its operations in Greece as part of Cyprus’s March 2013 bailout agreement which provided for the recapitalisation of the bank with uninsured customer deposits, a process also known as bail-in.
“The terrible problems in the Greek stock market had unnecessarily weighed down the value of Bank of Cyprus,” Ross said, adding a probable listing on a European stock exchange, which the bank has been considering for some months now, could help rectify the problem.
The Cyprus BusinessMail understands that Bank of Cyprus is considering moving the secondary listing to a more liquid European stock exchange, one option could be the London Stock Exchange.
A recovery of the Greek stock market, where bank stocks have been decimated in recent weeks” could also help Bank of Cyprus shares recover, “assuming that they get through the next phase of the bailout and assuming that the Greek recapitalisation is not too severe,” he added.
Ross’s company together with other investors invested €1.3bn in Greece’s Eurobank Ergasias SA in 2014. The extent of the Greek banks’ capital needs will determine the losses of shareholders and bondholders of Greece’s banks and the Greek economy’s recovery pace.
Greek banks, which remained shut for three weeks after the government under Prime Minister Alexi Tsipras, failed at the end June to agree on an extension of the country’s previous bailout agreement with international creditors, may need up to €25bn in fresh capital to meet regulatory capital adequacy standards.
Tsipras’s failure to timely agree on an extension of the programme allowed the Greek economy to plunge back into recession. After growing 0.8% in 2014, the Greek economy is expected to shrink 2.3% this year and another 1.3% in 2016.
A month ago, Ross said in a Bloomberg interview that the €25bn in capital needs estimated for Eurobank, National Bank of Greece SA, Piraeus Bank SA and Alpha Bank AE., Greece’s four major banks, included in Greece’s latest aid package, could prove too conservative. He also cited Cyprus’s case, saying that the country utilised only €1.5bn from a total of €2.5bn in bailout funds earmarked for the recapitalisation of its banking sector.
Greece’s authorities are in a race against time to complete stress tests that will determine the capital shortfall in order to complete the recapitalisation before January 1, when a law that will allow the recapitalisation of banks with deposits becomes effective. Authorities in Greece suspended the operation of the Athens Stock Exchange during the country’s banking crisis.
“What went wrong was the politics,” Ross said in reference to the plight of his investment in Greece. He added that he may have decided otherwise if he had an idea of the course of Greek politics in 2015. In the January 2015 elections, Greek voters brought Tsipras, the leader of the populist, radical left SYRIZA to power, after he promised to ditch austerity and renegotiate the country’s bailout terms, after his predecessor Antonis Samaras called for a snap poll.
“When we went in, under the Samaras regime, we felt that Samaras had the right formula for Greece,” he said. “Samaras only had a three vote majority in the Greek parliament and he felt that if he called early elections given that the economy was turning around, he thought he would strengthen his control. Well, he guessed wrong”.
Don’t emulate Greece
In reference to Cypriot politics, the U.S. investor said that the lack of a parliamentary majority by the Anastasiades administration caused delays “both in timing and in the effectiveness of the implementation” of reforms agreed with international creditors.
“But with the economy turning around I would be hopeful that all of the electoral figures would understand that this is the right direction for Cyprus,” he said. “It will be very unfortunate for the country to backslide now”.
Cyprus which plans to test the markets before the end of the year before considering its market access finally restored, is expected to exit its €10bn cash for reforms programme in March, two months before voters will vote for a new parliament.
“There is no real reason to change direction,” Ross added.
Hourican’s legacy
Ross, who is together with ex-Deutsche Bank boss and current Bank of Cyprus chairman Joseph Ackermann and member of the board Maksim Goldman, also part of the Cypriot lender’s nominations and corporate governance committee, said that the committee continues its efforts to select a successor for chief executive officer John Hourican, after the latter submitted his resignation in April. The committee is reviewing a row of “very good candidates,” he added.
“I don’t know exactly what the timing will be” to announce Hourican’s successor, Ross said. “It‘s more important that we get it exactly correct than exactly what week we are announcing. It will not be forever, we are quite farinto the process and I think that not only the board but the shareholders and the public will be very happy with the outcome”.
John Hourican “was exactly the right person to start the turnaround of the bank and because of his efforts and because of the capital infusions and the turnaround of the Cypriot economy, the candidate pool for a CEO this time is infinitely stronger than the candidate pool was when John was selected over a year ago,” he said.
“Meanwhile, Hourican has been continuing to function very effectively as the CEO and so we are grateful that even though for family reasons he decided to depart, that he has stayed right through and has continued to do a very good job at the bank,” Ross said. “There has been a very good number of good applicants and that’s part of what has taken a while to weed it down but we are down to a relatively short list and as I said, we have an abundance of resources coming out of that process”.
Source: Cyprus Mail
