The country’s biggest lender took cash away from savers to survive in 2013. Now, remarkably, Bank of Cyprus is hoping to float in London
A branch of Bank of Cyprus branch in Nicosia in 2013, the year of the Cypriot bailout. Photograph: Barbara Laborde/AFP/Getty Images
Only three years ago, Bank of Cyprus was on the critical list. It had been forced – under the terms of a €10bn bailout of the country – to seize cash from its savers and was being kept afloat by billions of euros pumped in from the central bank.
But, in a story of revival that mirrors the recovery in the Cypriot economy, the bank is now eyeing a listing in London and outlining plans to expand in the UK.
Chief executive John Hourican – who got the top job after leaving Royal Bank of Scotland amid the controversy of its Libor fine in 2013 – was in the City last week explaining how he intends to make the bank attractive to investors.
The details are still sketchy. An initial listing is targeted for early next year but the main plan is to get into good enough shape to gain a place in the coveted FTSE indices that will help lure in big-money investors.
Nonetheless, it is a sign of the impressive ambition Hourican has for a bank that, as he has admitted, is still “in repair”: some 58% of its loans are still non-performing (in default or close to it).
But there are positive signs. Just €800m of emergency funding from the central bank still needs to be repaid, a small sum compared with the €11.4bn – equivalent to 70% of the country’s GDP – that was required to keep it afloat in 2013. Also, customers are once again putting their money on deposit at the bank, which was the first to force its savers to contribute to the rescue of the ailing financial system.
In the depths of the eurozone crisis, anyone with more than €100,000 in savings lost money and the island’s second-largest bank, Laiki, was shut down almost overnight under the terms Nicosia agreed to in 2013. Bank of Cyprus took on the smaller depositors at Laiki and Hourican was recruited to turn around an institution that had, as he has put it, embarked on “managerial tourism”. Businesses in Russia were sold off and other international operations scaled down.
Hourican, who was accustomed to controversy after being part of the team attempting to turn around RBS, did not escape it in Cyprus. He once found his car burnt out, which he told one interviewer was a sign of the anger local people felt living under the bailout.
Announced in the early hours of 25 March 2013, the bailout terms Nicosia accepted from the EU, IMF and European Central Bank were harsh. Yet the country finished its rescue programme in March: a result seen by many as little short of miraculous.
Cypriots protesting against the terms of the bailout in 2013. Photograph: Patrick Baz/AFP/Getty Images
“In terms of speed, its recovery has been extraordinary,” said Hubert Faustmann, professor of history and political science at the University of Nicosia. “The recession was expected to be deeper and longer but the government implemented reforms quickly and efficiently, and for that it deserves praise.”
More phlegmatic than their cousins in mainland Greece, many Cypriots simply accepted the draconian terms of the deal, although there were protests. Most saw the structural changes – starting with cuts to civil service jobs and salaries – as not only long overdue but more palatable than budget-enhancing tax increases, the policy favoured by the government in Athens.
Ongoing reunification talks have triggered hopes of an economic boom, with Greek and Turkish Cypriot leaders working to clinch a deal by the end of the year. Few, though, believe the island’s EU-member southern republic will return to its pre-crisis affluence any time soon.
Even so, ratings agency Fitch has upgraded Cyprus by one notch from B+ to BB-. The economy grew by 1.75% last year and the government expects growth of 3% this year.
The policy pursued to revive the bank has been similar to the way the economy has been streamlined. One Bank of Cyprus official describes it as “shrinking to strength”. “There has been a lot of deleveraging abroad and very technical tidying-up of the overhang that existed on our books,” the official said.
The bank has also secured fresh funds. Some €1bn was raised in 2014 from high-profile investors such as Wilbur Ross, the billionaire who backed Donald Trump to become US president. Ross is now deputy chairman while Josef Ackermann – who ran Deutsche Bank until four years ago – is chairman.
The immediate next steps will require repaying the rest of the emergency funding and setting up the holding company in Ireland that is needed to help Bank of Cyprus meet the criteria to eventually join the FTSE.
A London listing will subject the bank – and its management – to tougher scrutiny. For now, though, insiders point to the 10% increase in deposits over the past year as a key barometer of progress. “Trust has recovered significantly: people feel very committed to returning money,” the bank official said.
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