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2017-03-06 14:52:05
New Commerce Secretary Was No Friend to Russians at Cyprus Bank

NICOSIA, Cyprus — When Wilbur L. Ross, a billionaire American investor, bought shares in the Bank of Cyprus three years ago, he found himself part owner of a big but failing bank with a vice chairman who used to work with Vladimir V. Putin in the Leningrad K.G.B. and five other Russians on its board.

That was enough to raise concerns when President Trump nominated Mr. Ross to be his commerce secretary. The president’s critics wanted to know if Mr. Ross had ever met with Russian intelligence, or if the bank ever gave favorable loans to the new president. They suspected that might be why Mr. Trump had spoken so favorably of Mr. Putin.

But while several of Mr. Trump’s closest allies have come under scrutiny for Kremlin ties, Mr. Ross, who was confirmed by the Senate on Monday, was no friend to the Russians in Cyprus — and in fact, he forced them out of the bank.

According to bankers, lawyers and others who have worked closely with the Bank of Cyprus, within months of Mr. Ross’s becoming a shareholder in the summer of 2014, all six Russians who were on the board when he arrived, including Mr. Putin’s former K.G.B. colleague, Vladimir Strzhalkovsky, were gone, ousted in a rolling purge of Kremlin influence.

“He has not been an accomplice of the Russians but the opposite,” Loizos Hadjicostis, president of the Cyprus Union of Bank Employees, said in an interview.

“Ross came in to block the Russians, not to help them,” he added. “The theory that Ross is a Russian Trojan horse does not make any sense to me.”

Helping to keep such theories alive, however, has been a refusal by the White House — over Mr. Ross’s objections — to release his written responses to questions posed by United States senators. In a speech in the Senate on Monday, Senator Bill Nelson, a Florida Democrat, complained that the White House was “sitting on” the replies.

Mr. Nelson said he had spoken with Mr. Ross about the Bank of Cyprus and had been told that Mr. Ross had one meeting of about an hour with a Russian investor in the lender in 2014. “He knows of no loans or interaction between the bank or anyone affiliated with the Trump campaign or organization,” the senator said. He added that he believed Mr. Ross and that he could not understand the White House’s “secretive behavior.”

“Not only is this lack of transparency unsettling, it’s behavior that everyone in this Senate should agree is unacceptable and shouldn’t be tolerated,” Mr. Nelson said.

After leading a group of around 30 investors from the United States and elsewhere in a 2014 investment in the Bank of Cyprus worth 400 million euros, Mr. Ross served for a period as co-vice chairman of the bank along with Mr. Strzhalkovsky, Mr. Putin’s old K.G.B. associate. But Mr. Strzhalkovsky, who had no experience in banking, was then forced out.

The only Russian with a prominent role in the bank today is Viktor Vekselberg, a billionaire businessman who bought shares in 2014, around the same time as Mr. Ross. Like all wealthy business people still working in Russia, Mr. Vekselberg has maintained good relations with the Kremlin but, unlike Mr. Strzhalkovsky and the Russians ousted from the bank, he has a long record of actually doing real business.

A company Mr. Vekselberg controls is now the biggest single Bank of Cyprus shareholder and has a representative on the board, Maksim Goldman, an American-educated Russian lawyer.

“Wilbur Ross was kind of a savior,” said Andreas Neocleous, the founder and chairman of the biggest law firm in Cyprus, which bears his name and has many Russian clients. They have included Dmitri Rybolovlev, a Russian billionaire who paid $95 million in 2008 to buy a Florida mansion from Mr. Trump, who had purchased it for less than half that just a few years earlier.

For a time, Mr. Rybolovlev, who has had tense and even hostile relations with the Kremlin, was the biggest shareholder in the Bank of Cyprus. But his stake in the bank, which at one point reached close to 10 percent, was mostly wiped out in 2013, when the island’s banking system nearly collapsed. In the process, he lost $600 million, his lawyer said.

That 2013 banking crisis, however, opened the way for other Russians, some of whom had close ties to the Kremlin, in contrast with Mr. Rybolovlev, to gain control of the Bank of Cyprus, at least on paper.

This happened when the Cypriot authorities, desperate for cash to prop up failing banks, confiscated billions of dollars in deposits held in the Bank of Cyprus and Laiki Bank, also known as Cyprus Popular Bank, which had failed. Many of these seized deposits belonged to Russians who, as partial compensation, received Bank of Cyprus shares.

As a result of this highly controversial maneuver, Mr. Strzhalkovsky and other Russians lost billions. But in September 2013, they secured seats on the Bank of Cyprus board, meaning that Russia, for the first time, had effective control of a major European bank.

Unfortunately, said Mr. Neocleous, the lawyer, none of them knew anything about banking and they could not agree on ways to save the Bank of Cyprus from ruin. “None of them were bankers,” he said. “They could offer nothing.”

With the lender on the edge of bankruptcy, John Hourican, an Irishman who had been brought in as chief executive, insisted that the bank raise capital. Fearful that the bank might go under, the Russians and other shareholders reluctantly agreed to the plan, which would greatly dilute their ownership stakes.

The Bank of Cyprus held meetings in New York and London to drum up investor interest, attracting the attention of Mr. Ross, a veteran of investing in distressed assets who had turned a tidy profit rescuing the Bank of Ireland. He then assembled a group of investors who follow his lead in these matters because they view him as having the Midas touch.

But the bank conspicuously stayed away from Moscow.

Adonis Papaconstantinou, who leads a group of Laiki Bank creditors seeking to recover lost money, and who was once on the Bank of Cyprus board, said that the 2014 share issue was intended to make it difficult for Russians to invest and was skewed in favor of potential investors from the United States and Europe.

“Nobody could tell the Russians that they could not invest, but they are proud people and they could see that this was an attempt to keep them out — or at least minimize their influence,” said Mr. Papaconstantinou, who lost his seat on the bank’s board in the purge that started after Mr. Ross’s arrival.

Christodoulous Vassiliades, the managing director of a Cypriot legal firm that represented some of the former Russian board members, recalled that the Russians had already lost so much money in the 2013 banking blowout that most of them had little appetite for a fight with Mr. Ross over control of the Bank of Cyprus.

It was clear, he said, that “Ross was there to benefit the interests of the U.S. and Britain,” Cyprus’s former colonial master, but the Russians “just wanted their money back” and came around to the view that the American investor was the best hope for keeping the bank afloat. Mr. Ross became vice chairman of the bank in November 2014 and gave up this position after his confirmation as commerce secretary.

“The bank is a business, not a geopolitical football,” said Mr. Hourican, the chief executive.

In many ways, however, it is much more than just a business. As the biggest bank in the country — a member of the European Union that is on a delicate fault line between East and West — the Bank of Cyprus plays an outsize role not only in the nation’s economy but also in its political and even geopolitical direction. In a June 2013 letter to the European Central Bank pleading for help, the Cypriot president, Nicos Anastasiades, described the Bank of Cyprus as a “mega-systemic bank” on which the future of the island depended.

Mr. Anastasiades, in public statements at the time, expressed alarm that the confiscation of deposits, carried out at the behest of the European Union in return for aid, would hand the bank to the Russians by issuing shares as compensation for seized money.

This has led to speculation in Cyprus that Mr. Ross came into the bank as part of an operation arranged by Mr. Anastasiades with help from Vice President Joseph R. Biden Jr., who visited the island in 2014.

Mr. Ross declined to comment.

Mr. Anastasiades, in an interview, denied having asked Mr. Biden to help line up investors for the Bank of Cyprus so as to break the grip of Russian shareholders. The government, he said, had no business deciding who invests in a private bank, and no interest in expelling the Russians.

“We are interested in keeping the Russian business community,” he said. “It is not a matter of Russians or Americans. We want everyone.”

The bank, fortified by the 2014 recapitalization and money from the sale of assets in Russia, Serbia and elsewhere, has now stabilized and even managed to pay back nearly $12 billion in emergency loans granted at the height of the crisis by the European Central Bank.

But while it is on the way to recovery and is no longer considered a potential beachhead for a Russian presence in Europe’s financial system, the bank has not yet proved to be a good investment for Mr. Ross. Its share price is still lower than what he paid in 2014.

Mr. Papaconstantinou, the former board member, said he spoke with Mr. Ross during one of his visits to Cyprus and asked why he had put money into such a troubled bank. “He told me he thought it was a good move because Cyprus had gone down so far it could not get any worse and could only go up,” Mr. Papaconstantinou recalled.

In the long run, that is probably a safe bet. But, said Stelios Orphanides, a financial journalist with Cyprus Mail: “It is like owning tickets to a first-class cabin on the Titanic. It is a good investment, so long as the Titanic does not go down. But if the Bank of Cyprus goes down, Cyprus goes down, too.”