Banker of the year:
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Best bank in Cyprus
John Hourican is banking’s Mr Fixit. A straight-talking, hard-working Irishman, who started his career at PricewaterhouseCoopers in Dublin, worked his way up through the ranks inside the investment bank at RBS, where he built the leveraged finance business, and has been nailing banks back together after successive shattering blows from the financial crisis ever since 2007.
He should go to work in overalls and a hard hat, with a nail gun and a saw, not a suit and a BlackBerry.
In 2007, RBS made him chief financial officer at ABN Amro to stabilize the Dutch bank after the consortium takeover by RBS, Fortis and Santander that marked the global banking industry’s headlong rush into a brick wall and almost brought down three of those four national champions.
After barely a year, he was back in London, now put to the much tougher task of refitting the investment bank at RBS as its new head, sorting out a muddle of others’ making, pulling out of businesses like equities, project finance, even leveraged finance, and paring back those that had a fighting chance, such as foreign exchange and rates.
In 2013, he was invited to do the honourable thing, which others declined, and take the fall for Libor fixing, in which he had had absolutely no involvement, when the tax-payer owned RBS was fined.
Next, he took on a project tougher than all those before: to restore Bank of Cyprus after the wholesale collapse of the Cypriot banking system, the imposition of capital controls on a eurozone member and the unprecedented bail-in of depositors.
Hourican tells Euromoney: “One of the aspects of the story that often doesn’t come out was that, adding to the complexity of coming out of resolution, this was also an exercise in combining two banks [Bank of Cyprus had to absorb Popular Bank and sell both banks’ Greek operations] at a time when not only had conventional equity investor confidence been shattered, but also the bank funding market had been left highly unstable by the unprecedented method of recapitalization through bailing-in uninsured depositors. This understandably left lingering doubts in the minds of many who might normally have been prepared to fund a national champion bank after it had been re-equitized.”
It didn’t help that the funding markets had been destabilized just as the bank had to scramble with growing bad debts among the country’s real estate developers. Even before dealing with potential claims on collateral, Hourican had to instil the basics of collection. “We now have 500 people just focused on recoveries. When we arrived there weren’t even procedures for calling past due borrowers to chase arrears. We have done a lot of due diligence to increase provisioning and collateral cover.”
|We have got the elephant off its side and back on its feet|
John Hourican, Bank of Cyprus
Two years on and the story looks much brighter. Hourican says: “All the capital controls have been lifted, deposits are returning, the bank’s dependence on ELA [Emergency Liquidity Assistance] funding has been reduced, capital levels are high from raising new equity from sophisticated institutional investors that have validated the bank’s strategy.”
Under Hourican, Bank of Cyprus has focused on its core Cypriot operations and divested itself of businesses he calls the “misadventures of managerial international tourism”, with sales of assets in Ukraine, Serbia, the UK and Romania, generating capital and liquidity and helping Bank of Cyprus to deleverage its balance sheet by about €1 billion every quarter.
“We have got the elephant off its side and back on its feet,” says Hourican, “having all the while had to engage with national policymakers so that our repair of the bank’s balance sheet didn’t damage the country and they didn’t damage us.”
In July 2014, only a year after the bank exited resolution, Hourican led a successful €1 billion share capital increase from some of the world’s most sophisticated investors, including Wilbur Ross. This was the single biggest foreign direct investment into Cyprus in its history and the equivalent of 6% of the country’s GDP. Hourican calls this a “page-turning moment” that changed the discussion from “will the bank survive, to how valuable is this bank?”
It made Bank of Cyprus one of the best capitalized banks in Europe with a 14.9% fully loaded common equity tier-1 ratio and enabled Bank of Cyprus to pass the ECB’s Comprehensive Assessment in October 2014 – a crucial milestone in terms of restoring confidence not just in the bank but also in the country’s economic recovery.
The rapid recovery of the bank led to a net increase in deposits in Cyprus in the fourth quarter of 2014 for the first time since the bail-in in March 2013, a trend that has continued into 2015 despite uncertainty in Greece and the full abolition of capital controls. There is perhaps another lesson here: Cyprus is not Greece.
Hourican intends to leave the bank at the end of August and to return to his family in Ireland after two years in Cyprus. Euromoney almost dreads to think what he might do next.
Two years ago, John Hourican took over a bank flattened by haircuts on Greek bonds, whose depositors had seen their money seized and where borrowers were defaulting en masse. Somehow, through determination, hard work and maybe a little luck, he turned it round. Deposits are coming back, NPLs are being dealt with, assets shed and capital raised. The bank is profitable and confidence has been restored. As John Hourican steps down as CEO, the story of our banker of the year for 2015 is also one of redemption.