Cyprian Bank of Cyprus purchased Russia's Uniastrum Bank

Updated June 27, 2008

   One of the survival ways for the Russian medium banks over access restriction to the capital is takeover by the foreign players. The largest Cyprian Bank of Cyprus has purchased 80% of Russia’s Uniastrum Bank at a low price. Despite the fact, the bank has an extensive multi-branch banking and long experience at the market, its price has significantly dropped as the result of world financial crisis.

   The Cyprian bank paid $576 million to purchase 80% of Uniastrum Bank. The core bank owners, George Piskov and Gagik Zakaryan, sold their equal 40% stocks holdings within the deal framework, but left in 10% stocks and kept their posts of board’s chairman and the president respectively. Within next 2 years Bank of Cyprus can increase its stake by 100%, as it is said in the Cyprian bank report. The deal will be completed after the permissions from Russian and Cyprian banking market regulators will be received, as reported in Uniastrum Bank press-service. After the deal closing the bank capital increases by $50 million, as the result of this the bank position in the rating of banks capital raises more than by ten points and it enters the top 50 of the largest banks.

   Uniastrum Bank is attractive by its wide regional presence foremost, as marks Metropol Company top-analyst Mark Rubinstein. However, Bank of Cyprus has paid relatively a lot of money to enter the Russian market. "As of 1Q 2008 the bank capital was $240 million", calculates Alfa Bank top-analyst Natalia Orlova. "So, the bank has been purchased with 3,1 coefficient to the capital, while the average market coefficient among the largest banks is no more than 2 index now". Thus, the Cyprian bank paid for the control and left the Russian owners even without the controlling interest, as adds Atlanta PioGlobal Investment Group top-analyst Maxim Osadchiy.

   Starr Russia Investments III and JCF FPK investment funds paid more than $200 million for 40% of the medium Investment Trade Bank (Investtradebank), and estimated it with 4,1 coefficient to the capital. Barclays has conducted the deal of Expobank purchase with the analogical coefficient. In analysts’ opinion, Uniastrum Bank financial results wish much to be desired, and exactly this has influenced the price. "For 1Q 2008 the bank has 1,8 times reduced net income by Russian Accounting Standards (RAS), and its assets have been 0,16%, and that is more than 10 times lower as compared to the average index in the sector", marks Maxim Osadchiy.

   Uniastrum Bank was established in 1994. According to Dengi journal data, as of January 1, 2008 it occupies the 64th place by equity capital size (RUR 5,4 billion) and the 49th place by net assets sum (RUR 50,4 billion). The bank regional network comprises more than 42 branches, 209 core and 155 additional offices in 45 Russia’s regions.

   Bank of Cyprus Group of Companies has been established in 1899 and is the leader in rendering bank and financial services on Cyprus. The Group comprises more than 300 bank branches on Cyprus, in Greece, Great Britain, Australia, Romania, Russia and on the Norman Islands. Bank of Cyprus assets total €31 billion, market capitalization is €7,1 billion as of early 2008.

   "In May Moody`s Rating Agency has lowered the long-term forecast of deposits rating in national and foreign currencies of Uniastrum Bank from stable to negative one and that has obviously influenced the deal price as well", continues Mr. Osadchiy. "The forecast change has been caused by low financial indices for the last two years, as well as growing operating expenditures related to regional expansion mainly", explained in Moody`s then. "In 2006 and 2007 Uniastrum Bank made a loss by IFRS (International Financial Reporting Standards) standards as a result of significant capitalization reduction". Uralsib Bank analyst Leonid Slipchenko also recalls Uniastrum Bank liquidity problems that have taken place in autumn, and that have resulted in suspension of the dollar mortgage programs. In experts’ opinion, another factor of Uniastrum Bank low price could become UniStream pay system being one of the most interesting among its assets that did not enter the deal package.

   Anyway, stocks sale of second tier Russian banks to the foreigners can already be named a tendency, as experts specify. "On the one hand, access to capital with the crisis has tightened", as says Natalia Orlova. "On the other, the bank market does not slow growth rates down. State-owned banks grow actively now, and this situation makes the majority of second tier players to consider closely the offers of foreign partners". The situation is favorable for the foreign banks, because "as a result of crisis the Russian banks have been overestimated and are mainly sold at the lowest price now", sums up Maxim Osadchiy.