Hellenic Bank Pcl, the Cypriot bank controlled by hedge-fund manager Daniel Loeb and online games developer Wargaming Pcl, sees opportunity in chaos to expand and seize market share from competitors, its chairwoman said.
“We are a small bank but we are the only systemic bank, not just in Cyprus, but in the region, that has not been bailed in or bailed out,” Chairwoman Irena Georgiadou said in a Nov. 20 interview in Nicosia. “We are maybe the right proxy for the recovery of Cyprus.”
Hellenic became the second-biggest lender in the euro area’s third-smallest economy after last year’s international rescue forced Bank of Cyprus Pcl to absorb its nearest rival Cyprus Popular Bank Pcl. Founded in 1976 with backing from the Orthodox Church of Cyprus and Bank of America Corp., Hellenic has drawn Loeb and other investors to shore up capital, skirting the seizure of deposits forced on Bank of Cyprus. Now it wants to boost loans and buy assets from rivals.
The bank is raising 220 million euros ($274 million) from investors in a rights offer after European Central Bank stress tests in October showed a 105 million-euro capital shortfall. Loeb’s Third Point Hellenic Recovery Fund and Wargaming have said they will take up new shares they’re entitled to keep a 20 percent stake each.
The investors are betting on a recovery that hasn’t yet started. Hellenic reported a loss of 124.8 million euros in the nine months to Sept. 30 as it increased provisions for bad loans 56 percent amid falling property prices and a contracting economy.
“The macro downturn has been milder than initial expectations,” said Alex Boulougouris, the Prague-based head of Greek research at Wood & Co. Financial Services AS. “The biggest challenge is the management of the huge nonperforming loan pile and bringing strategic defaulters back into the system. That’s the case for Hellenic too although they have a strong liquidity position.”
Shares in the company, which trade on the Cyprus stock exchange, have dropped 43 percent this year, and now value the business at about 393 million euros.
The International Monetary Fund, which part-financed the island’s rescue last year, in October said the economy is poised to shrink 3.2 percent this year, less than an earlier forecast of 4.2 percent, and expand 0.4 percent next year. That will benefit Hellenic, Georgiadou said.
With 7 percent of the lending market and 13 percent of deposits, Georgiadou said the bank can expand as the island emerges from a banking-sector collapse, budget cuts and the euro area’s only restrictions on the movement of capital.
Georgiadou says she plans to offer “consolidation loans” whereby Hellenic can bundle credit cards, loans and mortgages from different banks into one Hellenic Bank account.
“Only some monasteries and some churches have Hellenic Bank as their primary banker,” she said. For “everyone else it’s their second or fourth banker.”
Hellenic could consider acquiring loan portfolios from other banks, after putting in place an arrears-management unit, or possible branch networks to expand, she said.
“Hellenic Bank has all the ingredients to gain market share and capitalize on the recovery of the Cypriot economy,” Marianna Pantelidou, a representative for Wargaming and a member of the board, said in an e-mailed comment. It has the “flexibility of a relatively smaller organization.”
Wargaming, established in 1998 by Belorussian Victor Kislyi, and with 100 million registered users of its online games such as World of Tanks, first bought a stake in Hellenic Bank in November 2013, spending 40 million euros to buy 30 percent of the lender in a rights offer.
David Bonanno, Third Point’s representative on the board, declined to comment for this article. Archbishop Chrysostomos, the head of the Cypriot Church, didn’t respond to a phone call seeking comment.
The stake held by the Holy Archbishopric of Cyprus and connected persons has fallen to 8 percent from the 20 percent it began with in 1976. Marking the shift, the bank now has two women on the board, including Georgiadou, 38, while there were no female members when the church dominated. The bank last month appointed Bert Pijls, who previously worked for Citigroup Inc. and BG Group Plc, as chief executive officer.
“We claim to be number two,” Georgiadou says. “Seven percent is hardly number two. There’s number one, it’s chaos and then it’s us.”