Hellenic signs deal with Co-op, as PIMCO pledges capital

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By Stelios Orphanides

Hellenic Bank said that it signed with the Cyprus Cooperative Bank a business transfer agreement on Monday allowing it to acquire the latter’s healthy part and a subscription agreement with Bravo Strategies III, a fund owned by Pacific Investments Management Company LLC (PIMCO).

“Through the acquisition a total balance sheet of €10.3bn of assets (or €10bn after fair value and other adjustments), as well as certain business of Cyprus Cooperative Bank related to the acquisition perimeter, will be acquired by the company,” Hellenic Bank said in an emailed statement on Monday evening, a week after the Co-op’s shareholders gave the transaction the go ahead.

The balance sheet of the acquired operations comprises a portfolio of €4.6bn in performing loans, €4.1bn in government bonds with a weighted average yield of 2.6 per cent, €1.6bn in cash, €9.7bn in customer deposits “and certain other current liabilities and assets”, Hellenic said.

The acquired performing loan portfolio is comprised of 45 per cent of mortgage loans, one third by consumer loans, 15 per cent by business loans and the remaining 7 per cent by loans to the government. In addition, Hellenic acquires €0.5bn in non-performing loans.

Under the terms of the acquisition, the Co-op, which is owned by the government and went out of business after failing to sufficiently reduce its stock of non-performing loans to comply with a restructuring plan agreed with the European Commission’s competition watchdog four years ago, will provide an asset protection scheme, guaranteed by the government, Hellenic said.

Hellenic, following the acquisition, Cyprus’s second largest lender, will pay the Co-op, which the government recapitalised with €1.5bn in 2014 and another €175m the following year, “€74m in cash as a consideration for the net asset value of the Acquisition perimeter, which is €247m,” it said.

Hellenic’s stock of Cypriot government bonds in its possession, rated non-investment grade and as such ineligible as collateral for the European Central Bank’s (ECB) monetary policy transactions, will increase following the acquisition to €4.5bn, the bank said and added that it intends to keep €4bn till maturity. Roughly €1.6bn of the total is maturing by the end of next year, and another €1.4bn by the end 2021.

Hellenic said that the asset protection scheme will “protect” the acquired €0.5bn in non-performing loans and up to €2.1bn of high-risk performing loans against probable impairments in the future.

According to the statement, Hellenic will raise €150m in fresh capital at a subscription price of €0.70 per share, with €100m “via a pre-emptive rights issue” and another €50m vial a private placement by the PIMCO fund, on condition that shareholders at an extraordinary meeting give the go ahead, the bank said. The deal with PIMCO will be cancelled if any of the parties is placed under sanctions or Cyprus again loses access to international markets.

“As part of the capital raise, the company has agreed with Demetra Investment Public Ltd that it will subscribe for up to €50m in the pre-emptive rights issue,” Hellenic added.

The acquisition will allow Hellenic over the medium term to reduce its non-performing loans ratio to below 20 per cent while maintaining a provision coverage ratio of around 55 per cent, maintain a common equity tier 1 (CET1) ratio of 14 per cent and a capital adequacy ratio of 17 per cent, it said. It added that after onboarding 1,100 of the Co-op’s workers, it will be employing 2,500 staffers, almost as many as the failed state-owned bank.

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Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Bob Ellis

    So, as the taxpayer picks up the real debts a foreign company will walk away with the profits. Who got paid for that one ?

  • Jeremy Rigg

    Who said “Blackbeard the pirate” was dead. Blatant robbery of the ‘usual’ by the ‘usual’, and the sheep just cant see it. Bloody amazing.

    • Bob Ellis

      The report about the exams underlines more sheep are joining the flock.

  • Barry White

    Another confidence building measure for the Cyprus Foreign Investment Board to advertise:

    “The deal with PIMCO will be cancelled if any of the parties is placed under sanctions or Cyprus again loses access to international markets.”

  • Wanderer

    So the shadiest of the deals goes through. The “good” (kind of) parts of Coop are absorbed by Titanic Bank, and the “bad” (abysmal) parts will be picked up by the taxpayer as always?
    Anyone taking bets on when is the next haircut?
    By the way isn’t PIMCO the same company which was hired by the gov. to do reports on Bank of Cyprus and Laiki Bank post haircut-2013?

  • Copernicus

    This is a very good deal for HB and a vote of confidence for HB with PIMCO in its shareholder registry. Quite clearly the HB has got an opportunity to grow its business at the expense of the only competitor left and if the net interest margin on its loan book widens the profit forecasts for the coming years will be very good. Rates in the Eurozone will stay low until end 2019 so HB has a very good chance to grow profits.
    We should look at why PIMCO invested and not try to see everything as black and negative. I would buy HB shares on any pull back!