State plans to inject more cash to aid CCB sale

It seems the government is planning a supplementary bond issue to reduce the capital needs of the investor who will take over the good assets of the troubled Cyprus Cooperative Bank for a reduced EUR 250 mln.

According to the CNA, talks between the CCB, the bank’s financial adviser Citigroup and the Ministry of Finance with suitor Hellenic Bank have advanced significantly, but there are a few technical issues remaining, which if solved the deal could be sealed within days.

Outstanding technical issues, according to reports, surround the financing gap, that is the difference between Hellenic’s assets and liabilities of the CCB.

The Finance Ministry seems to be putting forward solutions which contradict the government’s previous declarations of not repeating mistakes of the past when banks were bailed out because they had to be, and not because they were viable.

The government appears to be willing not only to cover the difference between HB capital resources and CCB liabilities, but also to guarantee any future losses of the venture.

CNA, citing sources close to the negotiation procedure, said the government is putting forward the use of two tools to lighten the capital needs of the future owner of CCB.

Firstly, a new government bond will be issued, with the state - as in the case of the EUR 2.35 bln deposit earlier in the year - will acquire ownership of assets that HB does not want or evaluates at a lower than nominal value.

At the same time, an Asset Protection Scheme (APS) will be implemented to cover future losses for HB caused by any assets (loans) acquired. According to the sources cited by CNA, the state is to guarantee that these losses will be covered if they occur.

The issue of a new bond and the use of APS will reduce the amount of funds Hellenic will need to capitalize the assets it will acquire. In that regard, the same sources estimate that HB’s capital requirements have now fallen below EUR 300 mln.

Meanwhile questions over Hellenic Bank’s future shareholding structure to emerge after the capital increase have yet to be addressed.

Reportedly, Atlas Merchant Capital, JC Flowers and Pimco will be involved in the new share structure, while Third Point Fund, which currently owns 26% of Hellenic’s share capital, has not said whether it wishes to participate in the capital increase or not.

If the government goes down the road of smoothing the way for Hellenic, a negative reaction to the negotiated deal can be expected from Brussels.

According to sources, the government’s move will be perceived as an effort to reduce the capital needs of the new owner from around EUR 550 mln to EUR 250 mln through accounting pyrotechnics.

European supervisors have demanded without further burdening taxpayers.

EU monetary authorities do not wish to see another state

clear

solutions, intervention towards the CCB, especially during the process of its acquisition. The state has financed the Cyprus Cooperative Bank to the tune of EUR 4.2 bln to date.

It should also be noted that the state’s latest intervention to bail out the CCB in April with a EUR 2.5 bln deposit was made without the prior approval of the Directorate-General for Competition of the EU. European authorities continue to emphasize to their Cypriot interlocutors that the key criterion for a successful outcome of the process is the viability of the new bank, with the ECB noting that the new bank’s NPL’s should not exceed 20% of its total lending portfolio.

Meanwhile, Hellenic Bank announced it has completed the EUR 144 mln sale of its non-performing loan portfolio, of predominantly non-retail secured and unsecured exposures, to B2Kapital Cyprus Ltd.

B2Kapital Cyprus Ltd, a subsidiary of B2Holding ASA, a Norwegian corporation listed on the Oslo Stock Exchange licensed by the Cyprus Central Bank to operate as a credit acquiring company, is take over a portfolio of loans given to 1,082 borrowers and 1,809 facilities.

The transaction, said the announcement, is consistent with the Bank’s strategy of “fixing” the balance sheet and at the same time it is in line with the European Central Bank and International Monetary Fund guidelines on the management of non-performing loans.