Bank of Cyprus has € 1.6 bln cush­ion af­ter cap hike

Financial Mirror (Cyprus) - - FRONT PAGE -

Bank of Cyprus now has cush­ion of EUR 1.6 bln af­ter the re­cent cap­i­tal in­crease of EUR 1.1 bln, con­tin­ued cost­cut­ting and cash­ing in on some EUR 950 mln the govern­ment owed it af­ter ab­sorb­ing the now de­funct Laiki Pop­u­lar Bank and be­ing bur­dened with its bailout obli­ga­tions.

Group Fi­nance Direc­tor Chris­takis Pat­salides said that ad­di­tional money raised from a fu­ture cov­ered bond is­sue of about EUR 1 bln will go to­wards pay­ing down the emer­gency liq­uid­ity as­sis­tance (ELA) obli­ga­tions to the Euro­pean Cen­tral Bank.

In any case, the bank will now have am­ple funds to over­come the EU-wide stress tests of some 128 sys­temic Eu­ro­zone banks in Oc­to­ber.

“With Com­mon Eq­uity Tier 1 ra­tio amount­ing to 15.1%, sig­nif­i­cantly above the min­i­mum re­quired by (bank­ing) su­per­vi­sors which is 8%, we have cre­ated a cap­i­tal buf­fer amount­ing at EUR 1.6 bln”, Pat­salides told the state-run Cyprus News Agency in an in­ter­view.

He said that given the cur­rent risk pro­file of the bank, the qual­ity of the loan port­fo­lio and the bank’s re­duced ex­po­sure abroad, there is a sig­nif­i­cant cap­i­tal buf­fer to ab­sorb un­ex­pected losses or shocks.

The se­nior of­fi­cial of the Group noted that af­ter the com­ple­tion of the first phase of the share cap­i­tal in­crease with a pri­vate place­ment of EUR 1 bln in fresh cap­i­tal to ex­ist­ing and in­sti­tu­tional in­vestors, the ex­ist­ing share­hold­ers hold 53% of the bank, while new share­hold­ers the re­main­ing 47%.

The per­cent­age of for­mer “legacy” Laiki Bank is pro­jected to fall to around 10% from 18%, while in­ter­na­tional in­vestors in­tro­duced by bil­lion­aire Wilbur Ross will hold a share of 19%.

These per­cent­ages are ex­pected to change with the com­ple­tion of Phase 2 of share cap­i­tal in­crease, where up to 20% of the shares of Phase 1 will be al­lo­cated to ex­ist­ing share­hold­ers, as part of the “claw­back” process.

Ross heads a group of in­vestors who have pumped in EUR 400 mln, while the EU-owned Euro­pean Bank for Re­con­struc­tion and Devel­op­ment (EBRD) a fur­ther EUR 120 mln.

Pat­salides said the in­crease in share cap­i­tal also paves the way for bor­row­ing from the debt mar­kets, which will help the bank to re­place the ELA with con­ven­tional fi­nan­cial in­stru­ments, such as bonds and de­posits, while im­prov­ing the trust of the de­pos­i­tors in the bank

“It is not a co­in­ci­dence that the in­ter­na­tional rat­ing agen­cies have seen pos­i­tively this in­crease and is ex­pected to grad­u­ally up­grade the credit rat­ing of the Bank, some­thing that re­duces the cost of bor­row­ing from the mar­kets,” he said.

Moody’s said that the cap­i­tal in­crease will im­prove the bank’s liq­uid­ity and its fi­nan­cial po­si­tion and that it will in­crease in­vestor con­fi­dence and pos­si­bly open up other fund­ing prospects.

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