'Happily ever after' a long way off for Bank of Cyprus CEO
NICOSIA, March 30
NICOSIA, March 30 (Reuters) - If John Hourican manages to drag Bank of Cyprus back from the brink of collapse, it would resurrect a financial institution, a national economy and his own career.
Deposed less than a year ago as Royal Bank of Scotland's head of investment banking, 43-year-old Hourican faces what is likely to be his defining legacy in trying to resuscitate the stricken Cypriot lender.
For now, the outcome is far from clear.
Hourican takes issue with the romanticised version of his decision to up sticks to Cyprus last November, six months after becoming the most high-profile victim at RBS of a rate-rigging scandal which the bank said the Irishman had no knowledge of.
"I think they (observers) read too much into motivation and into the planning of people's careers," said Hourican, who was paid 7.5 million pounds ($12 million) by RBS for 2011 and earned 141,000 euros for his first two months as Bank of Cyprus CEO. "I took the job because it was in front of me. I have never had a masterplan."
The fates of Bank of Cyprus and the Cypriot economy are intertwined. The island suffered the worst economic growth in the euro zone in 2013 and is expected to repeat that in 2014. The bank accounts for about 30 percent of the country's lending.
Europe is watching to see how Cypriot banks can recover after seizing funds of depositors to shore up capital, a precedent that informed a new EU-wide banking deal.
Russians, who were among the biggest losers in the deposit grab, remain wary of putting cash into the banks and are watching to see if their one-time haven can be restored.
But on the anniversary of its rescue, Bank of Cyprus is in a perilous state, with mounting loan losses, falling deposits and a still-fragile economy threatening its revival.
UPPING THEIR GAME
Over half of Bank of Cyprus's loan book is classed as non-performing, and while Hourican says there has been some recent stabilisation, the chief financial officer at rival Hellenic Bank, Antonis Rouvas, told Reuters he could not predict at what level the banking system's bad debts would stabilise.
They already make up than 40 percent of total lending across the sector, a tally unmatched in the euro zone and well above the 30 percent of neighbouring crisis-hit Greece.
Moves by local lawmakers could make things even worse. Marios Clerides, the chief executive of the Co-operative Central Bank (CCB), told Reuters his bank could need another bailout on top of the 1.5 billion euros it got in February if proposed new laws to protect private homes from repossession are enacted.
"You have to see the political environment we're working in," he said of banks' scant progress with non-performing loans. "The politicians want us to handle things with a velvety touch. The troika wants us to handle them aggressively. We are trying to handle them as best we can."
RBS's former deputy head of non-core operations, Euan Hamilton, is leading Bank of Cyprus's efforts to stem the tide of loan losses. Customers falling behind on their loans are now contacted by the bank as soon as they stop paying and independent experts review business plans of ailing customers before loans are restructured.
Bankers want the state to strengthen their hand by introducing new laws to help them foreclose on the assets pledged as security to back loans, a measure championed by the EC/IMF/ECB teams overseeing Cyprus's bailout.
"The objective is not to penalize householders, but banks need to have the tools to collect their money," Rouvas said.
Hourican and Rouvas are optimistic that lawmakers will come good, but others are not so sure. "People of influence have loans with the banks," said one experienced senior Cypriot banker, pointing to the unpredictability of parliament.
The most famously invoked parliamentary veto came last March, when politicians refused to sanction initial plans to seize deposits agreed between the government and EU leaders.
A year on, scars from the eventual deposit seizure are still raw, even for depositors at unaffected banks like CCB.
"We say 'we're well capitalised', but there is no trust," said Clerides. "We say that you are insured (for deposits under 100,000 euros). Their reaction is 'what guarantee can you give that they won't change the law?'."
Andreas Neocloueus, a Limassol lawyer who advises Russian clients, says he doesn't expect them to bring any more money into the island even if the political situation at home worsens. "They fear that the banking system is still sick," he said.
Capital controls, introduced to avoid mass withdrawals after the deposit grab, helped contain the fall in Bank of Cyprus's deposits in the last six months of 2013 to 2 billion euros.
"We've analysed the hell out of that," Hourican said on the subject of what would happen to his bank's 15 billion euros deposit book when the controls are fully lifted.
He expects restrictions within Cyprus to be eased over the coming months, but thinks restrictions on bringing money out of the country are likely to last another year. Between now and then, he must make Bank of Cyprus strong enough to withstand the hit.
The bank hired HSBC to review its business plan, including examining the feasibility of splitting itself into a good bank with healthy loans backed by deposits, and a bad bank with troubled loans backed by fresh funding. (ID:nL5N0MM34X]
"Although Cypriot banks have never been heavily reliant on the bond market, looking at what Greece's Piraeus has been able to achieve in recent weeks, I don't think it would be a surprise to see a Cypriot bank in the market," said Dierk Brandenburg, a senior bank credit analyst at Fidelity, referring to Piraeus's raising of 500 million euros on March 18.
Relisting shares, which were suspended in March 2013, is on the to-do list but Bank of Cyprus is likely to ask for an extension of the suspension when it runs out in July, Hourican said.
"A relisting of the stock for some of them (shareholders)would be an indication of progress. To me, there are other indications of progress we need to have in place first," he said, pointing to the bank's need to reduce its 10 billion euro reliance on last-resort central bank funding, tackle non-performing loans and sell non-core assets.
The bank is reforming how it lends, moving away from collateral-based lending to look at cash flow.
Hourican spent 16 years at RBS, where he overhauled the investment bank, cutting 10,000 staff and closing operations in 14 countries. A former colleague said he lost his job after RBS's investment banking arm fell out of political favour.
Hourican said he wants to "leave something lasting", but said he is not after a headstone that credits him with saving Bank of Cyprus.
"I am absolutely not that narcissistic," he said. ($1 = 0.6011 British pounds) (Additional reporting by Aimee Donnellan in London; editing by Tom Pfeiffer)