By Angelos Anastasiades
IN SOME ways, taking over a seemingly impossible task has at least one redeeming aspect: the cost of failure approaches zero. But staking one’s professional reputation on a bet that can’t be won would be irrational, even by the ‘nothing-to-lose’ logic.
So when Euan Hamilton said yes after he was approached by his friend, Bank of Cyprus CEO John Patrick Hourican, to help save the critically wounded banking behemoth as head of the recoveries division, he was either unaware of the true extent of the problem, or felt the challenge wasn’t insurmountable.
He would probably argue the latter, but maybe it was a bit of both.
“It’s not a question of whether I would have taken the job, had I known then what I know now; it’s more to do with whether the challenge I was faced with was greater than what I thought it would be,” he said. “Yes, it was.”
Hamilton, like Hourican a former senior RBS executive, had no trouble describing the mess he inherited. Job one, he said, was disentangling the recovery procedure’s “spaghetti-like” administrative structure into a centralised hub of operations. “No one knew who was in charge of what,” he explained. “We fixed that.”
From there, Hamilton had to get to work addressing the bank’s growing heap of non-performing loans (NPLs), circling a staggering €14 billion, or approximately 55 per cent of the bank’s loan portfolio as of March 2014.
Their effect on the bank is enormous, as on the one hand they trap large amounts of capital in the bank’s books. On the other, reduced loan repayments stifle available liquidity, further entrenching the economic recession, full-circling back to yet more reduced loan repayments.
“This is what we’re focusing on right now,” Hamilton said. “We’re trying to leave behind operations in places like Romania and Ukraine and focus on the local market, converting NPLs into performing loans or exiting them in some way.”
In theory, Hamilton’s stint at RBS as deputy chief of the ‘non-core’ division should make him the right man in the right chair by default. Not necessarily, he said.
The UK job was more strategic in nature and required a long-term view, whereas the Bank of Cyprus gig is like a “mechanic working under the hood’.
“The job was very different,” he said. “For one thing, we were dealing with a more mature market, with people who were more experienced. Also, there was much more liquidity available.”
But none of the above – or lack thereof – has been his most frustrating concern. Not even the infamous legal framework on insolvency, which offers defaulting borrowers a ridiculous level of protection at the expense of lenders and is being revised by the finance ministry on orders by the troika, ranks up there with a mentality that seems deeply entrenched in Cyprus.
“So a guy has a mortgage for ‘X’ amount and he’s charged the property to the bank and he’s paying his mortgage,” Hamilton offered by way of an example. “But then he says ‘Hey, I’ve read in the press that the government said everything is fine, we’re never going to let the banks take your house’, so he says ‘I like that idea, I’ll just stop paying my mortgage – you can’t do anything, good luck to you.’ And you see what we call strategic defaults – people who can pay but won’t because they’re waiting for this magic wand, for the government or whoever to say ‘don’t worry, you can keep your house forever, you never have to pay your mortgage or rent.’ People who enter contractual obligations need to understand that as a bank we will follow through on contracts.”
Its validity notwithstanding, this sort of argument may have contributed to the spread of a ‘banks want our homes’ scare. But according to Hamilton, nothing could be further from the truth.
“This is the problem with the current legal framework,” he explained. “Lenders need to have leverage in order to bring people to the table. And I’m not talking about the builder with the mortgage, I’m talking about the large companies who invested the money perhaps in a bunch of properties, and have found it’s not going so well.”
Visibly frustrated even trying to describe such instances, Hamilton went off into a long-winded – and quite amusing – example involving a fictional defaulting property developer who refuses to engage with the bank in order to restructure his loan, arguing that the toothless insolvency legislation allows him to weather the hard times at the bank’s expense, and sell his properties when the economy has recovered, a few years later.
“So there you go, I don’t want to talk to you,” the fictional developer audaciously tells the bank just before slamming the phone.
“But we have no interest in mass foreclosures, particularly when it comes to someone’s main home,” he said, exasperatedly adding “what am I going to do with them all?”
“My clear message to people is this: come and talk to us.”
Tangentially, Hamilton found himself involved in a reported clash between the bank’s board and executive management, personified into chairman Christis Hassapis and CEO Hourican, respectively.
Apparently, the board is less than happy with the pace of the restructurings and the delay in bringing the number of NPLs down, despite, as one board member stated publicly, Hourican being “granted everything he asked for”.
“I have a very good relationship with the board and get their full support,” Hamilton said. “Would they like things to be done quicker? Of course, we all would. But these things are complicated and take time.”
Another rumour had Hourican and Hamilton under pressure from political and financial interests to go easy on the notorious ‘top-30’ – the bank’s biggest defaulting borrowers who owe roughly €6 billion – or half of total NPLs.
They are, after all, some of the most influential names in the country’s business world.
“If people are trying to pull strings, they’re not pulling them with me,” Hamilton said unequivocally. “How powerful they are is irrelevant to me. They owe us money, we want it back – that’s it. You know, both myself and John [Hourican] are Anglo-Saxons, a culture that doesn’t countenance those sorts of deals.”
Anglo-Saxon or not, nowhere was Hamilton’s professional outlook clearer than in his response to how the bank is gearing up in preparation for the European Central Bank’s stress tests this fall.
“I wouldn’t stand for my guys trying to push half-baked restructurings just for the sake of the stress-tests,” he said. “We want to push the right solutions, and if that means not as great a picture, then that’s life. We’ve got to avoid pushing the problems down the line, which is what has happened until we arrived. The stress tests will be what the stress tests will be, and the portfolio is what it is. Some of it will have been fixed and some of it won’t, and they’ll reflect in the stress tests.”
