(Updates with additional background and CEO comment in fifth and thirteenth paragraph)
By Stelios Orphanides
The state-owned Cooperative Central Bank said that it entered an agreement with Spain’s Altamira Asset Management SS to set up a joint unit to which the lender will outsource the management of its delinquent portfolio.
The decision to set up a new unit, 51-per-cent owned by the Spanish financial corporation and 49-per-cent by the Co-op, was taken on Monday at an extraordinary general meeting in Nicosia, the lender said in an emailed statement. In addition to managing €7.2bn in non-performing loans, the new unit will also be responsible for the management of real property in the possession of the Cooperative Central Bank, worth €0.4bn, which resembles a similar agreement between Hellenic Bank and APS Holdings SA announced in January and implemented this month.
The shareholders of the bank, more than 99-per-cent owned by the government, which recapitalised it in 2014 and 2015 with €1.5bn and €175m respectively, also decided to have all 6,036,000,000 issued shares of the Cooperative Central Bank, with a nominal value of €0.28, listed on the Cyprus Stock Exchange’s main market at a price of €0.10 each after the conclusion of consultations with supervisory authorities, including the European Central Bank, the bank said.
The meeting also decided to rename the bank Cooperative Cypriot Bank Ltd and to amend regulations accordingly, it said.
The agreement with Altamira, Europe’s second largest non-performing loans management company with a portfolio of €65bn, has a duration of 10 years and does not provide for the sale of assets in the possession of the bank, the lender said. The earnings of the new unit will be linked to progress in reducing its non-performing loans.
Amid piling pressure for higher pay by unions, which organised a strike on Tuesday, the Co-op, which struggles with a mountain of non-performing loans accounting for roughly 60 per cent of its total loan book and is trying to recover from a March decision of the financial ombudsman, who ordered the bank to return €111m to overcharged borrowers, said that the new unit will be staffed on a voluntary basis with existing personnel.
Workers at Hellenic Bank staged a work stoppage last month, in protest of the transfer of some of their colleagues to the new unit.
Altamira is owned by Spain’s Santander Bank, the Abu Dhabi Investment Authority, Canada Pension Plan Investment Board and the New York-based Apollo Global Management, the Co-op said.
The Cooperative Central Bank posted last year a €7m net profit and adjusted its 2015 results to reflect a net loss of €176.4m following the ombudsman’s ruling. It originally posted a net loss of €165.6m in 2015. In the first quarter, it posted a €2.6m net profit compared to a €25.3m profit in the respective quarter of 2016, partly on a €10m reduction in net interest income.
The bank is in the process of listing its stock on the CSE in an attempt to reduce with successive capital issues the government’s shareholding to 25 per cent. Finance minister Harris Georgriades said in May that the government planned to donate 25 per cent of the bank’s stock to its borrowers and depositors.
The agreement is “a decisive step” to tackling the non-performing loans problem, said the finance minister in a separate emailed statement. “Besides, it is a regulatory requirement to seek such solutions from specialised entities”.
As a result, Altamira’s decision to enter the Cypriot market can only be “an important development”, he added.
The Co-op’s chief executive Nicholas Hadjiyiannis described the deal as a milestone in the bank’s history, which takes the bank into the next stage regarding dealing with loans in arrears, in accordance with banking practices applied in Europe.
His counterpart at Altamira, Julian Navarro Pascual, said that Cyprus is the first challenge dealt outside the Iberian peninsula, which demonstrates “confidence in the Cooperative Central Bank’s prospects and achieving goals we set”.
Altamira, which launched its operations as Santander’s delinquent asset portfolio and real estate manager, was assigned the management of 50,000 accounts by Spain’s bad bank, SAREB. It entered a similar agreement with Portugal’s Oitante and is in addition in charge of managing delinquent loans on behalf of BBVA and Bain Capital.