articles | 15 June 2018

Co-op sale gets go ahead

The cabinet approved in principle Hellenic Bank’s offer for the acquisition of state-owned Cyprus Cooperative Bank’s operations, Finance Minister Harris Georgiades said.

The body approved the proposal on the condition that Hellenic Bank submitted a binding capitalisation plan before the Co-op’s convened a general meeting slated for Monday to discuss and decide on the matter, the minister told reporters after the council of ministers meeting according to the transcript of his comments forward by the Press and Information Office.

The proposal outlines that Hellenic will be subject to a capital raise and will undertake payment of the Co-op’s total deposits, amounting to €9.7 billion, the minister said. Hellenic will also take on €10.3bn the Cyprus Cooperative Bank’s assets consisting of performing loans, bonds and cash, plus around €500m in non-performing loans, he said. Assets worth approximately €8.3bn will be transferred to the state.

“In various cases we had to take difficult decisions but down the road it became obvious that where we dared, the result was worthwhile,” Georgiades said. “As far as the Co-op is concerned, it is clear that behind the human element and behind the cooperative idea which certainly helped several of our fellow citizens, there was bad management. This relaxed structure can have no place in the demanding European environment.”

In April, the government deposited €2.5bn in the Co-op bank raised from several bonds in return for non-performing loans worth €7bn and shares in other companies worth €165m.

With an additional government deposit of €1bn to the Co-op, performing loans worth €500m and all of the lender’s immovable property, worth €600m, will be in the government’s hands.

“This way, the considerable, but once-off increase of public debt will be rendered manageable,” he said adding that the framework of the transaction is subject to the European Commission’s approval, putting forward its own conditions broadly aimed at maximising state revenue.

Though damages to portfolios are not expected, the proposal includes a guarantee to buyers for any potential damages. Based on figures from an independent agency, the contingent loss in a 12-year period is not expected to exceed €184m, the minister said.

“Our aim is to have banking institutions that aren’t supported on clay legs, that have been rid of the pathogens and mistakes of the past,” Georgiades continued. “Through this decision, we are taking a decisive step in that direction”.

Responding to criticism that has surrounded plans for Co-op’s partial acquisition, the minister suggested self-reflection from those complaining.

“I’d like to remind that in 2013, the Cyprus Cooperative Bank had €300m negative working capital,” he said. “This means €300m was needed just so capital could be at zero and much more so it could be at the necessary levels”.

“The risk of a haircut,” i.e. the write-down of deposits, as in the case of Bank of Cyprus and Cyprus Popular Bank in 2013, “was visible and demanded state support,” he said.

While the Co-op managed to reduce its non-performing loans stock to €6.2bn by the end of 2017 from €7.6bn two years before, the quality of loans extended before 2014 still burdens the lender.

Taxpayers are also expected to foot the bill relating to the compensation granted to staff who will be made redundant.

On Friday morning, a representative of Etyk, the bank workers union, revealed more details about how the deal will affect the state-owned bank, into which Cypriot taxpayers have already pumped more than €4bn over the past four years.

Christos Panagides, secretary-general of Etyk said in an interview with state radio CyBC that Hellenic will take about 1,100 of the Co-op’s 2,650 staff, while another 900 will have to retire through a voluntary retirement scheme.

The rest, he said, will continue to work for the body that will remain in place after the deal to administer the bank’s non-performing loan portfolio, which accounts for roughly six tenths of the total.

In a statement released on Friday afternoon, following negotiations between the two sides, Hellenic said it “submitted today a final offer for the acquisition of certain assets and liabilities of Co-op, which is subject, amongst other things, to a capital raise of the company.”

The statement followed an announcement from the Co-op that it had received a revised acquisition proposal from Hellenic.

The Co-op said it had convened a general meeting for Monday at 6.30pm to discuss and decide on the matter.

“Further to our May 14, 2018 announcement, the Cyprus Cooperative Bank confirms that it received a revised proposal from Hellenic Bank as part of the strategic transaction, and in accordance with the relevant invitation for demonstration of interest.”

Source: Cyprus Mail

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