John Hourican, the Irish banker hired in late 2013 to help stabilise a lender at the epicentre of Cyprus's financial crisis, had barely waded through initial briefing papers on arriving in Nicosia when he got a phone call.
Georgios Vassiliou, the country's former president and chief negotiator for its accession to the European Union almost a decade earlier, was on the other end of the line.
"He said: 'Peter Sutherland has been on the phone to me and he's told me to look after you,'" Hourican recalls.
He needed all the allies he could muster and there was no better one than Irish man Sutherland, a former European commissioner and ex-head of a predecessor to the World Trade Organisation, among other notable roles.
Hourican arrived on the scene as Cyprus was in the middle of an international bailout, fuelled by an implosion of the island's banks. He took charge of Bank of Cyprus, the country's largest company, which had just been through a massive restructuring, including the inflicting of losses on depositors and the forced takeover of much of the assets of smaller rival Cyprus Popular Bank.
“It was very touch-and-go at times as to whether I could succeed – or, indeed, whether I wanted to be there,” Hourican says, especially as his wife, Rioghnach, and four children remained in Dublin.
After shrinking the group’s balance sheet by almost one-third, cutting bad loans by more than two-thirds, strengthening its capital base, and attracting €5 billion of fresh deposits, Hourican is preparing to step down in the coming months to join UK consumer finance group NewDay.
Vassiliou, now 88, turned up at Hourican's last annual general meeting as chief executive of Bank of Cyprus two weeks ago and took to the floor to "wholeheartedly" thank both the Irish man and outgoing chairman Josef Ackermann, the Swiss former head of Deutsche Bank, for rebuilding the bank and supporting the country's recovery.
Such a warm exit wasn’t always on the cards. Having quickly made enemies of many of his fellow board members on taking over the helm in October 2013 – more of which later – the banker’s car would be burnt out by more militant operators a year and a half later, while he would also be forced – for a brief period – to have a security guard with a machine gun posted outside his Nicosia home.
“Still, I never felt physically under any threat,” he says.
There was little in the background and early career of Hourican, whose father, also named John, was a chief executive of Bord na Móna, to suggest he would become something of a crisis junkie.
The Dubliner trained as an accountant with Craig Gardner, now PwC, before joining Royal Bank of Scotland (RBS) in 1997 just before his 27th birthday, where he quickly rose up the ranks as he was pushed by superiors into new jobs every 18 months or so. His younger brothers Declan and David, from a family of six, would also work for RBS at senior levels.
In 2007, he got the call from the bank's then chief executive Fred Goodwin, a figure who was feared and admired in equal measure, to join him for a cup of tea in his office in Bishopsgate in the City of London, where he was offered the job of splicing and dicing Dutch banking group ABN Amro, which RBS had just bought with rivals Santander and Fortis for €72 million.
“He was at his most charming and said: ‘John, you won’t be in the bastards’ box if you don’t take this job, but I have told the board you’re the guy and you’re going to do it. Go away and chat to your wife and come back and tell me you’re going to do it.’”
Hourican knew he had little choice but to pack his bags for Amsterdam. While the work itself was “intellectually very interesting”, it soon became apparent that what was purchased “was a dog”. RBS had the worst part of the deal, buying the investment bank part of ABN Amro – with a massive balance sheet and no strong market positions – at a time when financial markets were falling.
In late 2008, he was brought back to London after RBS received a government bailout and was given the unenviable task – under new chief executive Stephen Hester – of rapidly shrinking the group's investment banking division. It involved getting rid of £650 billion of assets, shutting operations in 14 countries and firing almost 40 per cent of the unit's 26,000 staff.
“It was brutal. It was fundamentally a blocking and defending strategy,” he recalls. “It was just constant, constant, constant at a very politically charged, difficult time.”
The situation became more fraught as RBS became embroiled in the industry-wide scandal around the fixing of Libor, a rate at which banks lend to each other, which forms the basis for the pricing of trillions of pounds of loans.
While Hourican had no involvement in or knowledge of Libor manipulation, which started before he took charge of the investment bank, he resigned in February 2013 as Downing Street and RBS’s board sought a scalp after the lender was fined £390 million (€442 million) by regulators. He left with one year’s salary, his minimum entitlement, but waived about £4 million worth of share options.
Does he regret allowing himself to become a scapegoat for the debacle?
“Yes, and no. But I think anyone who knows the circumstances of the time would regard what I did as the honourable thing,” he says. “Politicians love to solve problems by seeking heads and page-turning events and they tend to try to do that with headlines.”
After taking a few months off – during which he went to the Masters golf in Augusta and took his family on holiday to Thailand – Hourican received a call that September from executive search firm Korn Ferry, which had been hired to find a new chief executive for Bank of Cyprus.
Hourican initially declined. Then he agreed to meet the board of the bank, which was still reeling after almost half of its uninsured deposits above €100,000 were forcibly converted into company shares under the terms of Cyprus’s international bailout.
While many of those whose counsel he sought advised him that he’d never be able to fix the bank, he decided to take the job. “I had seen some shellshock before,” he says. “So, I had a slightly easier perspective on the circumstance than maybe others and I thought maybe I could make a difference.”
Hourican thought at the time – and continues to believe – that Cyprus was “incredibly poorly treated” by its bailout masters, especially as it was the first euro zone location used to test a bail-in of depositors, years before the EU would develop proper rules to inflict losses on a failing bank’s creditors.
Cyprus, which also became the first euro zone country to apply capital controls – with limits on credit card transactions and withdrawals from banks – was little more than a Petri dish to test measures with little threat of contagion, according to Hourican.
“I think, as a small country, it was an easy victim,” he says. “It was easy to blame the so-called Russian money in Cyprus, and easy to do a lot of things.”
Part of the reason for the implosion of Cyprus's banking system – which propelled the island into its €10 billion aid programme under the EU, European Central Bank (ECB) and International Monetary Fund – is all too familiar to Irish citizens.
Banks with access to cheap cash in the early euro era (plus, in the Cypriot case, a mountain of Russian deposits) drove asset prices higher by offering loans to anyone who would take them.
“Everyone became a developer. The butcher had three flats and the farmer was taking off a corner of the farm and turning it into apartments and a hotel,” says Hourican. “There were golf courses built that were never going to be viable.”
Unlike Irish banks, Cypriot lenders were used to handling high default rates. Even before the crisis, the Mediterranean island’s banks had 20 per cent non-performing loan ratios as a result of a long history of loose credit standards and laws that meant that it could take up to 15 years to repossess a property behind delinquent debt.
The triggering event for the crisis, however, was a large exposure by local banks to Greek government bonds, which had losses imposed on them under a massive restructuring of Athens’s private sector borrowings in 2012.
Cyprus, unlike Greece – or perhaps because of the explosive Greek situation at the time – decided very quickly that it needed to follow banking and economic reforms in its bailout programme to recover.
“They were blessed by having what I can only describe as a seriously good listener as a minister for finance,” says Hourican of economist and politician Harris Georgiades, who has held the office since early 2013. “He really focused on trying to do the right thing and balancing the country’s books. They very quickly returned to a [budget] surplus and recovered the confidence of international markets.”
While the early bail-in of depositors at Bank of Cyprus rebuilt its capital reserves to barely-acceptable levels, Hourican quickly realised that they needed way more money to deal with problem loans, which accounted for 63 per cent of its portfolio at the time, and the sale of other assets.
His plan was met with resistance by the bank’s board, which was now populated by representatives of depositors-turned-shareholders who stood to have their stakes watered down as a result.
Hourican’s only choice, he felt, was to go above the board’s head to orchestrate for the Central Bank of Cyprus to instruct the lender to raise capital. This would ultimately lead to an overhaul of the board and the appointment of Ackermann as chairman.
US investor Wilbur Ross, who had been part of a group of rescue investors in Bank of Ireland in 2011 and would go on to become US president Donald Trump's commerce secretary, was among the key investors in Hourican's €1 billion equity raising.
“I think most people in Cyprus would now say that a very swift move to raise equity and further recapitalise the bank provided us with the confidence to restore liquidity and . . . the ability to pass ECB stress tests [in 2014],” he says. “I think from that moment on, we were given the benefit of the doubt in the advice we gave.”
Hourican handed in his notice in 2015 to return to Ireland and spend more time with his young family, before being convinced by his board to reverse this decision within months. A perusal through old annual reports offers a clue as to why. His remuneration jumped from €910,000 in 2015 to €1.65 million the following year. His compensation reached €2.33 million last year.
But now it really is time to leave and move closer to home. In early March, Hourican announced that he will be stepping down in September to join UK consumer lender NewDay.
The London-based company has more than 5 million customers and runs co-branded credit cards with retail groups such as Amazon and Laura Ashley and tour operator TUI. It has been owned since early 2017 by private equity groups CVC and Cinven.
Part of the job description – as all chiefs of businesses owned by private equity firms know – is to prepare an ultimate exit for the owners.
“We will need to transition it to either public ownership or another form of ownership,” he says.
Meanwhile, in Cyprus, where Hourican steered his bank through a near-death experience, there’s still work to be done by a successor, Panicos Nicolaou, an executive who has been with the group since 2001.
“We have been digitising and modernising the bank aggressively over the past two years and I think that there’s an opportunity to monetise that as we go forward,” he says.
The net effect? The bank will have to shed “at least a third, and maybe more”, of its 4,000 staff over time as customers move increasingly towards online banking, Hourican says.
“We have to recognise that this is an existential matter over time that we have to tackle.”
He could be talking about any bank in Europe.
Name: John Hourican
Job: Outgoing CEO of Bank of Cyprus, incoming chief of UK lender NewDay
Lives: Commutes between Nicosia and the family home in Dublin
Family: Married to Rioghnach, with four children
Something we might expect: He studied economics in NUI Maynooth, completed a masters in accounting in Dublin City University, and qualified as a chartered accountant with Craig Gardner (now PwC)
Something that might surprise: He can fly a helicopter but hasn't done so in recent years