The archbishop of Cyprus has taken the unusual step of urging thousands of small investors in the island's biggest bank to reject a €1 billion share sale agreed with international fund managers led by Wilbur Ross and the European Bank for Reconstruction and Development when it comes up for approval next month at an extraordinary general meeting of shareholders.
Mr Ross is reported to be leading a group that had agreed to invest €400 million in Cyprus’s biggest bank via a private placement, and the EBRD had committed another €100 million.
The US investors exited Bank of Ireland this year after tripling his money.
The new deal is designed to shore up Bank of Cyprus's capital ratios ahead of this year's European asset quality review and stress tests, which have already prompted euro zone lenders to raise more than €45 billion, according to analysts at Morgan Stanley.
The archbishop’s intervention is aimed at protecting almost 90,000 “old” shareholders of Bank of Cyprus who took a hit last year when large depositors were forced to convert a sizeable chunk of their savings into shares as part of an international rescue package, and now face further dilution if the private placement goes ahead.
Mistakes and illegalities
“We have seen mistakes piled upon mistakes and illegalities on top of illegalities (during the bank’s restructuring),”
Archbishop Chrysostomos
, head of the eastern Orthodox Church of Cyprus, told state radio yesterday.
“All Bank of Cyprus shareholders, old and new, are called on to vote against the planned capital increase unless the bank agrees to restore the old shareholders along the lines of our proposals,” said the archbishop, who serves on the board of a Bank of Cyprus shareholder pressure group.
The Orthodox church was one of the biggest single shareholders in the bank before the island’s financial collapse, controlling a stake of about 3 per cent and several seats on the bank’s board.
The archbishop is known for his “hands-on” approach to supervising church investments, which range from a controlling stake in the island’s largest brewery to ownership of several luxury hotels as well as large tracts of real estate for development. He has recently been promoting a project to build Cyprus’s largest integrated tourist resort on church-owned land.
Bank profits
Kypros Chrysostomides
, legal adviser to the old shareholders, said they wanted the value of their shares to be restored through the recognition of a €1.8 billion profit made by Bank of Cyprus from its takeover of
Laiki Bank
, the island’s second-largest lender which collapsed last year.
“Alternatively, the shareholders could be compensated by being granted property in [Turkish-held] northern Cyprus, which is held at zero value on the bank’s books but could acquire considerable value in the future if there is a settlement,” Mr Chrysostomides said.
Cyprus was split into separate Greek Cypriot and Turkish Cypriot republics following a Turkish military intervention in 1974, prompted by a coup aimed at uniting the island with Greece. While reunification talks have made little progress, cross-border property deals have gradually become more frequent.
Mr Chrysostomides said the old shareholders faced “a second equally unacceptable dilution” as the new shares would be sold at €0.24 each compared with the €1 price at which the bail-in of depositors took place last year.
– (Copyright The Financial Times Ltd 2014)
