ON TUESDAY, the Bank of Cyprus announced it had reached an agreement to sell more than 14,000 loans of €2.8 billion (of which €2.7 billion relate to NPLs) and secured by real estate collateral to Apollo Global Management for a gross cash consideration of some €1.4 billion.
The bank said the portfolio has a contractual balance of €5.7 billion. The net book value of the assets being sold as at 30 June 2018 amounted to €1.5 billion before the impact of the transaction on the 2Q 2018 income statement.
Commenting on the agreement John Hourican, the Bank of Cyprus Group SEO, said: “This is a transformative sale for the Bank and is the first meaningful Corporate and SME NPL trade in Cyprus.
“Since 2014, we have focused on decreasing our stock of NPLs and improving the asset quality of the Bank, and today’s Transaction is a significant step forward on our journey of de-risking the balance sheet and enhancing our capital position.
“There is of course much more work to be done and we remain as focused as ever on continuing to seek solutions, both organic and inorganic, to further improve the Bank’s asset quality position.”
As Apollo is buying the loans, defaulting borrowers will owe money/loans to Apollo. Apollo will restructure the loans, enter into debt for asset agreements, foreclose, etc. in order to recover the contractual loan balance of €5.7 billion. The Bank is required by law to send borrowers a letter before their loan is transferred to Apollo.
Following the bank’s announcement Standard & Poor’s rating agency upgraded Bank of Cyprus’ long-term credit rating to B+ from B. In its statement the rating agency said “The upgrade reflects our belief that the agreed sale of NPEs and the pricing of an additional Tier 1 (AT1) instrument represent meaningful steps for BoC in reducing the inherent tail risks associated with holding a large stock of unproductive exposures. The sale and expected new issuance also contribute to strengthening the bank’s financial profile, namely its asset quality and capitalization.”
In a separate announcement the Bank of Cyprus said that appointment of John Hourican as Group’s CEO was being extended to 31st December 2020 and that Chairman, Josef Ackermann, intended to step down at the 2019 AGM.
I have just returned from Cyprus with the intention to buy a property in Limassol. I did not buy a property. What I did notice was how soft the banks were with individuals who have been defaulting on their loans.
People were not fearful of the banks taking their assets. They simply were not worried about it, even though they owed tens of thousands of euros. This is great news for this country because people have been ripping the system off for many years and they need a kick in the backside.
I think I will patiently wait and see what Apollo does in an attempt to deal with the NPLs.
What do you think?
Ed: I suspect Apollo will be more aggressive at chasing loan repayments.
“Ed: I’m sure Apollo would have carried out due diligence and assessed the possible risks and rewards before striking a deal with the Bank of Cyprus. It may be that the 14,000+ loans that the company has purchased are in Cyprus Pounds and Euros – we just don’t know.”
OK thanks. I don’t suppose there is any way of finding out? Probably a slim chance as all of these sorts of talks are usually shrouded in secrecy anywhere – but especially if run by Greek Cypriots.
Ed: You’ll need to speak with Apollo.
Apollo and such companies are far more ruthless than any bank will ever be. How do you think they will make their money? Anybody in Ireland or other countries where this has happened has never had a goid experience.
Why isn’t the English government stepping in here?
Ed: The reason the British Govt. doesn’t step in is because Cyprus in no longer a British colony; it gained its independence in 1960.
Do Box get paid €1.4 bn in cash for the deal or not ? I.e dumped in a BoC account by Apollo or not ? Wilbur Ross is accused of swindling $120 million from associates and ‘could rank among the biggest grifters in American history,’ according to a bombshell Forbes report.
@Pils / @Nigel.
I’ve been waiting for this to happen for about the last 5 years. The currency of the loans and the nationality of the people who were issued them might be irrelevant – but the mis-selling and corruption at the source of the issuance of them is most definitely NOT irrelevant!
More transparency needs to be pushed for in terms of identifying the granularity of the specific 14,000 loans.
Banks who mis-sold these loans aren’t just washing their hands of this. Apollo will presumably have carefully considered the ramifications of many loans now being in legal dispute and factored that into their ‘deal’?
Ed: I’m sure Apollo would have carried out due diligence and assessed the possible risks and rewards before striking a deal with the Bank of Cyprus. It may be that the 14,000+ loans that the company has purchased are in Cyprus Pounds and Euros – we just don’t know.
Good that you have explained how this whole process will ‘work’, Nigel. It’s been done in other countries – although I wonder if ever on this scale (scale relative to the banks Total loans that is). HUGE – but at least they are now TACKLING it!!)
Will Apollo actually pay BoC 1.4bn when the loans are sold or is it all on “tick” and they pay back BoC as they recover ?
If so BoC are merely dumping NPLs which they have to date been unable to resolve so why should Apollo stand a better chance of recovery ?
The EU love moving bad debt as if it never existed.
Ed: Apollo pays €1.4 billion for the loans – it’s an investment. The same as you buying shares in a company for €1.00 & the shares increasing in value to €2.00, you don’t have to pay the company more money.
BoC isn’t dumping some of their NPLs, they’re selling them to an alternative investment company.
Apollo must have thought it a good investment or they wouldn’t have agreed to their purchase.
As you will have read in the bank’s announcement “The completion of the Transaction remains subject to a number of conditions precedent, including mainly regulatory and other approvals, including the ECB agreeing to a Significant Risk Transfer (“SRTâ€) benefit from the Transaction.” The EU isn’t involved in moving the bad debt.
How does NPL effect people (foreigners) with Swiss Franc loans when a company like APOLLO buy from BOC.
Ed: The currency of the loan is irrelevant as is the nationality of the borrowers. Providing foreigners & Cypriots maintain their loan repayments, it will have no effect.
You you will red in the article “As Apollo is buying the loans, defaulting borrowers will owe money/loans to Apollo. Apollo will restructure the loans, enter into debt for asset agreements, foreclose, etc. in order to recover the contractual loan balance of €5.7 billion. The Bank is required by law to send borrowers a letter before their loan is transferred to Apollo.”