BOCY sale of Uniastrum is ‘credit positive’ says Moody’s
The sale of Russian subsidiary Uniastrum to a smaller bank for EUR 7 mln will be credit positive for the Bank of Cyprus, according to Moody’s, a transaction that will incur an accounting loss of EUR 29 mln but will help reduce its risk-weighted assets significantly.
Having over-exposed the bank to the high-risk Greek and Russian markets in the past decade, the previous management drove Bank of Cyprus to the brink of bankruptcy in 2013 when it showed to have an unsustainable amount of Greek government toxic bonds. As a result, these bonds were written down, the bank’s losses exceeded EUR 1 bln and it lost its Greek franchise network, together with now-defunct Laiki Popular Bank which it inherited. Laiki also burdened BOCY with its ECB-approved emergency liquidity assistance, amounting to about EUR 11 bln at the end of 2013 and prudently reduced to less than half as of March this year.
Last week, Bank of Cyprus said it had agreed to sell its turbulent 80% stake in Uniastrum for a mere EUR 7 mln to Artem Avetisyan, the majority shareholder in Bank Regional Credit, 147th biggest in Russia by assets, but it also rid itself of about EUR 700 mln in risk weighted assets.
In March, when BOCY released its audited results for 2014, the total loss of discontinued operations for the year amounted to EUR 303 mln, of which a loss of 299 mln related to the Russian operations, 36 mln to the Ukrainian operations disposed in the second quarter of 2014 and a profit of 36 mln from the Greek operations due to the reversal of a provision recognised initially in 2013.
BOCY bought into Uniastrum in 2008 for EUR 371 mln and has since seen only losses and shrinking deposits at bank’s 120 branches, employing 2,000 staff. This has prompted members of the Cyprus parliament to call for a probe into the investment, suggesting that this was the beginning of the downfall of the once-mighty Cyprus bank.
Following a similar sale in Ukraine last year, BOCY’s net exposure to Russia is now reduced to EUR 114 mln of loans and real estate assets which will “be reduced over time”, the bank had said in a statement. It will retain its rep offices in Moscow and St Petersburg.
The credit for the bank’s deleveraging goes mainly to its outgoing CEO John Hourican, who announced that he was stepping down at the end of August, half way through his contract, having sold all the overseas and “non-core” assets, and refocused the island’s largest lender to a “primarily Cypriot” bank.
Having failed to agree on a successor, the next board meeting at the end of July will determine the new CEO who will be announced in early August, according to bank sources.
The rating agency said that BOCY will now have to focus its efforts on reducing its high rate of non-performing loans, accounting for about 53% of its gross loans. This rate is doggedly high and a concern to analysts as long as the bank has not yet started to significantly dispose of distressed loans or reschedule troubled mortgages due to an eight-month delay by parliament to pass a package of measures on foreclosures and insolvencies that protect borrowers as well.
In earlier statements, the bank said it had deleveraged its balance sheet by EUR 3.5 bln, disposing of its Ukranian operations, its investment in the Romanian Banca Transilvania, its loans in Serbia, assets in Romania and the UK loan portfolio acquired from Laiki Bank.
“The bank is running a process to dispose of its operations in Russia,” it had added earlier this year, suggesting that Uniastrum, itself at the heart of a struggle by control by its former owners Gagik Zakaryan and George Peskov, would no longer burden the Group with a deterioration of its loanbook and deposits.
On June 1, Uniastrum’s capital amounted to 6.6 bln roubles (EUR 110 mln) and with assets of 50.6 bln roubles (EUR 820 mln) was ranked 102nd biggest in Russia.
According to Interfax-CEA, Kostroma-based Bank Regional Credit is the 147th biggest by assets of 26.4 bln roubles (EUR 430 mln), less than half of Uniastrum, and has 18 offices.