BOCY eyes € 1bln recap

Financial Mirror (Cyprus) - - FRONT PAGE -

Bank of Cyprus may seek an in­jec­tion of up to 1 bln eu­ros in fresh cap­i­tal to cover the 944 mln out­flow in cus­tomer de­posits dur­ing the first quar­ter and not to im­pede on the cur­rent plan to dis­pose of non-core as­sets and re­duce its ex­po­sure to other risks.

The bank’s board will be dis­cussing the best way to pro­ceed with this cap­i­tal in­crease at its board meet­ing on Thurs­day to re­view pro­pos­als by ad­vi­sors HSBC, while any new fund­ing will also help main­tain a healthy cap­i­tal ad­e­quacy ra­tio in time for the cru­cial stress tests of 128 Eu­ro­zone banks in Oc­to­ber.

The bank is­sued an an­nounce­ment on Tues­day say­ing that “among other is­sues, there will be a dis­cus­sion about fund­ing and cap­i­tal op­tions that could ex­pe­dite the im­ple­men­ta­tion of the Group’s Re­struc­tur­ing Plan and, in tan­dem, could fur­ther strengthen the Group.”

News re­ports have sug­gested that the bank may seek fund­ing of about 500-800 mln eu­ros, with some even sug­gest­ing closer to 1 bln, which would also al­ter the cur­rent share­holder struc­ture and in­tro­duce new in­sti­tu­tion­als.

The bank was re­cap­i­talised last year to the tune of about 3.4 bln eu­ros when it con­verted un­se­cured de­posits of more than 100,000 eu­ros to eq­uity and cre­ated new share­hold­ers from among mega-de­pos­i­tors, mostly from Rus­sia, an­ni­hi­lat­ing the old share­hold­ers who now rep­re­sent less than 1%.

A fur­ther di­lu­tion of the present share­hold­ing, how­ever, would not be to the lik­ing of the present board, who, nonethe­less have no other choice.

This fol­lows state­ments by Fi­nance Min­is­ter Haris Ge­or­giades on Mon­day who urged commercial banks to fol­low the govern­ment’s lead with its suc­cess­ful 750 mln euro bond is­sue and turn to for­eign in­vestors to strengthen their cap­i­tal base.

He said that the four Cypri­ots banks that will un­dergo stress tests – Bank of Cyprus, Hel­lenic Bank, Rus­sian Commercial Bank and Co-op­er­a­tive Bank – “should seek to re­cap­i­talise even be­fore the stress tests, now that for­eign in­vestors are con­fi­dent in the prospects of our econ­omy.”

Bank of Cyprus is ex­pected to ap­point a hand­ful of ad­vi­sors who will man­age the new cap­i­tal in­jec­tion, de­spite CEO John Houri­can deny­ing a month ear­lier that the bank was con­sid­er­ing a list­ing on the Lon­don Stock Ex­change, as re­ported by SkyNews.

Hedge Funds and man­agers in­ter­ested to take part in the cap­i­tal in­jec­tion re­port­edly in­clude Fair­fax, Cap­i­tal Re­search, Wil­bur Ross, Fidelity, Macken­zie and Brook­field, who have been ac­tive in Greece with the re­cent cap­i­tal in­jec­tion at Eurobank and are keen to look at Cyprus.

Analysing the bank’s first quar­ter re­sults, Emergo Wealth and Ex­ito Cap­i­tal In­ter­na­tional said “de­spite reporting a pos­i­tive re­sult of EUR 31 mln, we still found some con­cerns which makes us be­lieve it is far too early to sug­gest that the big­gest Cypriot bank has turned the cor­ner for good or not.”

The Emerg-Ex­ito re­port said that “the abil­ity of Bank of Cyprus to con­tinue as a go­ing con­cern is de­pen­dent on the suc­cess­ful im­ple­men­ta­tion of the Group’s re­struc­tur­ing plan, the pe­riod over which the re­stric­tive mea­sures and cap­i­tal con­trols are in place, the con­tin­u­ing re­liance on and avail­abil­ity of the Cen­tral Bank liq­uid­ity fa­cil­i­ties and the ac­tual out­come of lit­i­ga­tion and claims mainly re­lat­ing to the bail-in of de­posits and the ab­sorp­tion of losses by the hold­ers of eq­uity and debt in­stru­ments of the bank.”

Though there are signs that things are slowly sta­bil­is­ing at BOC and hence chances of sur­vival have in­creased, “it is ob­vi­ous that the bank is still in in­ten­sive care and on life sup­port. With­out the emer­gency fund­ing from the ECB the bank would lit­er­ally be illiq­uid with po­ten­tially se­vere con­se­quences,” said Ben Rosen­berger of Ex­ito Cap­i­tal.

“The out­look is chal­leng­ing and linked to a lot of un­cer­tain­ties. The re­cov­ery – if suc­cess­ful - will cer­tainly take sev­eral years.”

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