muscleman Posted March 22, 2015 Share Posted March 22, 2015 Current price/PPTP ratio: 2.5. Price/book: 0.5. page 55: http://www.bankofcyprus.com/Documents/Investor%20Relations/Presentations/English/FY2014%20ResultsPresentation_Final2.pdf the new quarterly 90+dpd formation has been very low in 2014. The recently quarterly loss seems to be mainly caused by Russia oil problems and a one time event. Does anyone know how much Wilbur Ross controls? It is said to be 19% here: http://www.valuewalk.com/2014/11/wilbur-ross-vice-chairman-bank-of-cyprus/ But it is not even listed as a 5% holder here: http://www.bankofcyprus.com/en-GB/Start/Investor-Relations/Shareholder_Structure/Structure/ Link to comment Share on other sites More sharing options...
cameronfen Posted March 22, 2015 Share Posted March 22, 2015 Thanks for posting. It seems to me that the companies NPL coverage is even weaker than Eurobank. Eurobank also has the more favorable valuation. What are your thoughts that make this idea better? Link to comment Share on other sites More sharing options...
muscleman Posted March 23, 2015 Author Share Posted March 23, 2015 Thanks for posting. It seems to me that the companies NPL coverage is even weaker than Eurobank. Eurobank also has the more favorable valuation. What are your thoughts that make this idea better? Yeah that was my initial reaction. However, I like BOC better because: 1. Wilbur Ross says that Cyprus is unlike Greece, which has a long term secular depression. Cyprus is more like being hit by a one off event. Therefore it will be easier to fix Cyrpus than Greece. 2. Wilbur Ross says that Cyprus regulators are one of the most aggressive amoung European banks to push for a loan to be classified as non-performing. 3. If you look at the presentation of BOC vs Piraeus bank, both have information regarding the loan loss provisions as well as collateral value coverage for the bad loans. BOC's combined coverage of loan loss provision+collateral exceeds 110% of loan face value. Eurobank does not have such information, and Eurobank's 90 dpd quarterly formation is the highests amoung Greek banks. 4. BOC has had 4 quarters of negative 90 dpd formation, except that in Q4 they had to recognize a large loan impairment charge due to Russian situations. But their own Cyprus operations are already profitable for the year 2014, so it is much safer than the Greece banks. Banks are all highly leveraged. I would rather get a 3x on a safer bet than a 6x on a risky bet that could potentially wipe me out. If you look at the commitment of Wilbur Ross in both Eurobank and BOC, you can see that Wilbur Ross only put in a very small amount in Eurobank, but a fairly large stake in BOC. It was mostly Prem Wasta who put in a large stake in Eurobank. Can anyone help me with my question about Wilbur Ross's stake in BOC? I see one article saying he has 19%, but the other one which lists 5% shareholders doesn't even have Wilbur Ross's name on it. Link to comment Share on other sites More sharing options...
benhacker Posted March 23, 2015 Share Posted March 23, 2015 From the December Prospectus, it doesn't show him as a big owner... I'm not sure...: --- Major Shareholders The table below shows the shareholding of shareholders who hold, directly or indirectly, more than 5% of the Bank's share capital as of the date of this Prospectus. Name Percentage of issued share capital (%) Cyprus Popular Bank Public Co Ltd ............................................ 9.624 Renova Group ............................................................................... 5.455 TD Asset Management Inc ............................................................ 5.232 European Bank of Reconstruction and Development ...................... 5.021 Link to comment Share on other sites More sharing options...
muscleman Posted March 23, 2015 Author Share Posted March 23, 2015 From the December Prospectus, it doesn't show him as a big owner... I'm not sure...: --- Major Shareholders The table below shows the shareholding of shareholders who hold, directly or indirectly, more than 5% of the Bank's share capital as of the date of this Prospectus. Name Percentage of issued share capital (%) Cyprus Popular Bank Public Co Ltd ............................................ 9.624 Renova Group ............................................................................... 5.455 TD Asset Management Inc ............................................................ 5.232 European Bank of Reconstruction and Development ...................... 5.021 Yeah.. That's rather weird. Wilbur had to resign from a number of important investees in order to serve the BOC board. I would be surprised if he doesn't even have a big position. Otherwise it would not make sense to show such commitment. http://www.prnewswire.com/news-releases/wilbur-ross-elected-as-vice-chairman-of-bank-of-cyprus-283463021.html Link to comment Share on other sites More sharing options...
MrB Posted March 24, 2015 Share Posted March 24, 2015 http://www.bankofcyprus.com/Documents/Investor%20Relations/Presentations/English/Chronos_NDR%2001Dec2014VF.pdf Page 9 Link to comment Share on other sites More sharing options...
muscleman Posted March 24, 2015 Author Share Posted March 24, 2015 http://www.bankofcyprus.com/Documents/Investor%20Relations/Presentations/English/Chronos_NDR%2001Dec2014VF.pdf Page 9 Thank you MrB! This looks good to me. I found that I could not buy BoC because IB does not support Athen stock exchange. Damn. ::) Link to comment Share on other sites More sharing options...
MrB Posted March 24, 2015 Share Posted March 24, 2015 http://www.bankofcyprus.com/Documents/Investor%20Relations/Presentations/English/Chronos_NDR%2001Dec2014VF.pdf Page 9 Thank you MrB! This looks good to me. I found that I could not buy BoC because IB does not support Athen stock exchange. Damn. ::) Try Frankfurt exchange BC9N:GR on bloomberg Link to comment Share on other sites More sharing options...
muscleman Posted March 24, 2015 Author Share Posted March 24, 2015 http://www.bankofcyprus.com/Documents/Investor%20Relations/Presentations/English/Chronos_NDR%2001Dec2014VF.pdf Page 9 Thank you MrB! This looks good to me. I found that I could not buy BoC because IB does not support Athen stock exchange. Damn. ::) Try Frankfurt exchange BC9N:GR on bloomberg I know that one. The liquidity was very bad for that one. In Athens stock exchange, I see bid 0.193 and ask 0.194. In Frankfurt, bid 0.19 ask 0.202 I bet the only way to buy this is through Fidelity then. Link to comment Share on other sites More sharing options...
benhacker Posted March 24, 2015 Share Posted March 24, 2015 MM, I know that one. The liquidity was very bad for that one. In Athens stock exchange, I see bid 0.193 and ask 0.194. In Frankfurt, bid 0.19 ask 0.202 I've found that when you have an illiquid ADR, which is more liquid elsewhere, just put in a large-ish order at the most liquid ask on the illiquid exchange. Usually a bot / fund / MM will cross the market and do the arbitrage for you (on the German exchange in this case). May or may not be helpful in this case. Link to comment Share on other sites More sharing options...
muscleman Posted March 24, 2015 Author Share Posted March 24, 2015 MM, I know that one. The liquidity was very bad for that one. In Athens stock exchange, I see bid 0.193 and ask 0.194. In Frankfurt, bid 0.19 ask 0.202 I've found that when you have an illiquid ADR, which is more liquid elsewhere, just put in a large-ish order at the most liquid ask on the illiquid exchange. Usually a bot / fund / MM will cross the market and do the arbitrage for you (on the German exchange in this case). May or may not be helpful in this case. Thanks! I guess I will just convert from USD to EUR and buy in Fidelity if I need to in the future. Link to comment Share on other sites More sharing options...
muscleman Posted April 21, 2015 Author Share Posted April 21, 2015 Bank of Cyprus' CEO John Patrick Hourican announced to resign today. Not sure what's the reason behind it. Link to comment Share on other sites More sharing options...
muscleman Posted April 30, 2015 Author Share Posted April 30, 2015 http://www.reuters.com/article/2015/04/18/eurozone-cyprus-foreclosures-idUSL5N0XF0C220150418 Cyprus passes foreclosures bill, opening access to ECB's QE programme Link to comment Share on other sites More sharing options...
muscleman Posted June 12, 2015 Author Share Posted June 12, 2015 Following its announcement dated 5 June 2015 regarding the partial repayment of a bond by the Republic of Cyprus, Bank of Cyprus Public Company Ltd (the “Bank” or the “Group”) announces that it has proceeded with the repayment of €500 mn of Emergency Liquidity Assistance (ELA) and €260 mn of European Central Bank (ECB) funding. As a result, ELA and ECB funding have been reduced to a current level of €5,9 bn and €500 mn, respectively. In total, ELA has been reduced by €5,5 bn since its peak of €11,4 bn in April 2013, while during 2015 €1,5 bn of ELA has been repaid. Link to comment Share on other sites More sharing options...
constructive Posted June 12, 2015 Share Posted June 12, 2015 There are lots of banks in Japan, South Korea, France, and a few others in Europe that trade at or below 0.5x book / 8x earnings and have less macro risk than Greece & Cyprus. Have you looked at any of those? Link to comment Share on other sites More sharing options...
muscleman Posted June 12, 2015 Author Share Posted June 12, 2015 There are lots of banks in Japan, South Korea, France, and a few others in Europe that trade at or below 0.5x book / 8x earnings and have less macro risk than Greece & Cyprus. Have you looked at any of those? It is not just price/book. It is more about price/earnings. I looked at a Japanese bank back in 2013 that David Einhorn mentioned. Something like Resona holdings. I think it was trading at 0.5 book and 8x earnings. Not a lot of upside and huge leverage used to achieve 8x earnings. The current price/pre-provision earnings ratio for BoC is only 2.5, and given 50% of loans are NPA, which does not generate earnings, if they can work down the NPA back down to 0, the earnings would double, so forward price/earning ratio would be 1.2 if turnaround is successful. Link to comment Share on other sites More sharing options...
yadayada Posted June 14, 2015 Share Posted June 14, 2015 this is basically a bet on the local economy. Especially the real estate market as half of their non performing loans are in real estate. Iv been there and it is an absolute corrupt mess (allthough the food is nice). Greece literally strongarmed them into the euro. Almost everyone tried to screw me over lol, and everyone complained how the economy was completely in the tank. Also non performing loans are half of their total loan book? 14 billion big. So probably those provisions will go on for a while? There will probably be more dillutions? Seems that within a few years, equity will be less then current market value. So you have to wonder if they are really worth several times book value? Link to comment Share on other sites More sharing options...
muscleman Posted June 15, 2015 Author Share Posted June 15, 2015 this is basically a bet on the local economy. Especially the real estate market as half of their non performing loans are in real estate. Iv been there and it is an absolute corrupt mess (allthough the food is nice). Greece literally strongarmed them into the euro. Almost everyone tried to screw me over lol, and everyone complained how the economy was completely in the tank. Also non performing loans are half of their total loan book? 14 billion big. So probably those provisions will go on for a while? There will probably be more dillutions? Seems that within a few years, equity will be less then current market value. So you have to wonder if they are really worth several times book value? NPA ratio is not the only factor to look at. Their provisions cover 40% of the NPA and they claim that the collateral plus provisions cover 110% of the NPA, though I am uncertain whether their assessment of the collateral value is accurate. If you check the quarterly new NPA formation, the trend is steadily downward and has reached negative territory for the past 2 quarters. That's why it is able to report positive earnings for 2015 Q1. Had it not been the oil tank in 2014 Q4, they would have also reported positive earnings in that quarter. GDP growth returned to positive territory. +1.3% for 2015 Q1. That's unseen since a few years ago. Pretty robust. Common tangible Equity ratio is around 13.9%. One of the highest in southern EU. Whether more dilution would come depends on whether they will keep losing money and therefore pushing down the TCE ratio. Once the TCE ratio gets below 10%, regulators will highly likely push for an equity raise, and that will severely dilute the current shareholders. However I am expecting the bank to report positive earnings from this point on. If my expectation is correct, they will be able to muddle through the mess and I would expect a 400-800% gain. If I am wrong, then I will likely incur heavy losses. Link to comment Share on other sites More sharing options...
yadayada Posted June 15, 2015 Share Posted June 15, 2015 Alright thanks, did not look at it that way. Seems heavy dillutions are unlikely then. Probably the way to lose here is if collateral is worth a lot less? Since they will have to start liquidating some of that real estate at some point. Looking at indices, it seems prices seem to stabilize there. But even if they dillute , there would still be upside then? Having some experience with Ocwen now, I wonder how is that value of collateral estimated? Because kicking that many people out of their homes and selling it seems tricky? Looking at all the large banks i n Cyprus, that NPL book is quite large % wise. So it will not be possible to clean that up within a few years. And you get people who destroy their homes, rip out all the copper etc. To summarize it then I guess, this will be a story of collateral liquidation? So a bet on how much their collateral is really worth. Probably if the economy turns up, some of those people will pay again, and others will have to be impounded and liquidated? And that last part will be significant compared to equity, even with an improving economy. Link to comment Share on other sites More sharing options...
constructive Posted June 15, 2015 Share Posted June 15, 2015 Your normalized earnings number and your estimated upside don't seem like they're based on reasonable ROA and ROE assumptions. And again, they have unusually large macro risks compared to other banks. They have a lot of exposure to Russia and Greece in addition to domestic exposure. The country is politically unstable with a third of the island occupied by Turkey. And they have a history of terrible underwriting (50% of loans went bad). Link to comment Share on other sites More sharing options...
muscleman Posted June 15, 2015 Author Share Posted June 15, 2015 Alright thanks, did not look at it that way. Seems heavy dillutions are unlikely then. Probably the way to lose here is if collateral is worth a lot less? Since they will have to start liquidating some of that real estate at some point. Looking at indices, it seems prices seem to stabilize there. But even if they dillute , there would still be upside then? Having some experience with Ocwen now, I wonder how is that value of collateral estimated? Because kicking that many people out of their homes and selling it seems tricky? Looking at all the large banks i n Cyprus, that NPL book is quite large % wise. So it will not be possible to clean that up within a few years. And you get people who destroy their homes, rip out all the copper etc. To summarize it then I guess, this will be a story of collateral liquidation? So a bet on how much their collateral is really worth. Probably if the economy turns up, some of those people will pay again, and others will have to be impounded and liquidated? And that last part will be significant compared to equity, even with an improving economy. There is no way to know how the collateral value is estimated. Cyprus laws makes the bank take 10 years to foreclose a property. However they recently passed a new foreclosure framework for loans more than 200k, it would be able to act fast. I agree that if BoC aggressively liquidates the properties, it will drive down the value of the rest of the collateral and that would be bad. A more rational way to do it is to restructure the loan with a less aggressive term and let the original borrower hold on to it. Cyprus is going to be a huge energy hub and big energy companies already started big construction projects. This, in addition to tourism uptick, should help a lot. Look at Cyprus' natural gas reserves. It is huge. Anyway, there are risks and upside potentials. Definitely you can't find a riskless investment with such huge upside. Link to comment Share on other sites More sharing options...
muscleman Posted June 15, 2015 Author Share Posted June 15, 2015 Your normalized earnings number and your estimated upside don't seem like they're based on reasonable ROA and ROE assumptions. And again, they have unusually large macro risks compared to other banks. They have a lot of exposure to Russia and Greece in addition to domestic exposure. The country is politically unstable with a third of the island occupied by Turkey. And they have a history of terrible underwriting (50% of loans went bad). In near monopoly economies, banks can make 30% ROE. Not kidding. I am using the assumption that they currently have 50% of NPA and they still make 700 M per year pre-provision earning, so if all of their assets are productive they should be able to double that earning power. Russia and Greece exposures have been aggressively written down to 265 Million or so on each. That's why they reported a big loss on Q4 2014. Link to comment Share on other sites More sharing options...
muscleman Posted July 5, 2015 Author Share Posted July 5, 2015 http://in-cyprus.com/grexit-impact-on-cyprus/ http://cyprus-mail.com/2015/06/21/grexit-impact-undesirable-but-manageable/ Looks like if Grexit happens, there will be some impacts on Cyprus. It is still unclear to me as how many Greek companies operate in Cyprus. ::) Link to comment Share on other sites More sharing options...
muscleman Posted July 5, 2015 Author Share Posted July 5, 2015 The impact of Grexit on Cyprus is unpredictable to me. Cyprus could be viewed as a safe harbor for greek companies and they could move operations here. http://www.ekathimerini.com/198857/article/ekathimerini/business/greek-shipping-companies-are-eyeing-cyprus-as-a-safer-harbor On the other hand, will Drachma really make Greece cheaper labor? Greece has heavy reliance on imports, which means drachma depreciation may not help much to lower labor costs. You need to pay more drachmas to each worker for their food and other daily living expenses. Link to comment Share on other sites More sharing options...
yadayada Posted July 5, 2015 Share Posted July 5, 2015 I always have doubts about that. The country is sort of shitty to do business in. And you would need export facilities in the first place. Those take years to ramp up. It is not like factories magically pop into existence if a currency gets cheaper. Link to comment Share on other sites More sharing options...
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