BOC to challenge Greek court ruling awarding investors compensation

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By Stelios Orphanides

A Bank of Cyprus source said on Tuesday that the bank will challenge the ruling of a Greek court awarding €460,000 in compensation to investors in securities issued by the bank who lost money in the 2013 banking crisis.

The source who was commenting on condition of anonymity a day after the Cyprus News Agency (CNA) reported of the March 13, ruling, declined to provide further comment.

The Athens-based court ordered Bank of Cyprus, the island’s largest lender, to compensate 24 bondholders, the CNA reported on Tuesday.

The court said that Bank of Cyprus failed to inform investors about the risks of the convertible enhanced capital securities, when it issued them and offered them to the public in 2011, the Cyprus News Agency reported citing a March 13 Athens court ruling.

Bank of Cyprus, which in March 2013 was forced as part of Cyprus’s bailout to dispose its operations in Greece, acted in violation of its obligations in order to sell its products through its Greek branch network to customers with whom it had a relation based on trust, the CNA reported.

The court awarded each of the 24 plaintiffs compensation proportional to the damages suffered, when the securities were converted into shares in Cyprus’s March 2013 banking crisis. The bondholders stake was subsequently diluted when the bank was forced to convert 47.5 per cent of its uninsured depositors into equity, the CNA said citing the ruling.

Bank of Cyprus knowingly presented “false facts as true” in order to encourage its customers to invest in these securities and omitted to inform them about the risks of this investment leading to losses for the investors as it sought to balance its shaken capital adequacy by tapping capital through the issue of the securities in question, while the plaintiffs always sought to safely place their savings, the CNA reported.

Phivos Mavrovouniotis, who chairs the bondholders association, a group representing Cypriot private investors who lost money from their investment into securities of this type issued by both Bank of Cyprus and Cyprus Popular Bank, widely known as Laiki, said that the ruling is important for those affected.

“The evidence we provided consisted of the findings of the Central Bank of Cyprus which essentially showed that they failed to apply the provisions of MiFid (Markets in Financial Instruments Directive)” prescribing that licensed investment advisors had to inform investors, Mavrovouniotis said. “While it is important for us, it would be more to have rulings issued by Cypriot courts”.

Both Bank of Cyprus and Laiki failed to inform investors, he said and criticised the speed at which Cyprus’s courts operate. While Cypriot bondholders filed lawsuits four years ago, Cypriot courts did not issue any ruling. By contrast, the recent ruling in Athens was the result of a lawsuit filed 15 months before.

Mavrovouniotis, who is considering running for president in next February’s elections after the government failed to compensate bondholders, said that the two lenders tapped almost €1.2bn from the security issue, €563m for the Bank of Cyprus and €626m for Laiki.

Bank of Cyprus sold a total of €160n of these securities to professional investors and the remaining €403m to private investors, whom registered advisors had to inform. In the case of Laiki, professional investors, which include investment and pension funds, invested €54m in this type of security.

The Greek court’s ruling may serve as useful guidance for both parties when the time comes to try similar cases on the island, the CNA reported, citing unnamed legal sources in Greece, adding that one should also take into account that the two countries have different juridical systems.

Bank of Cyprus refuses to compensate bondholders and encouraged them to resort to courts. In a letter to Mavrovouniotis dated January 23, 2015, signed by its chairman Josef Ackermann and board member Michael Spanos, the bank rejected demands for a general compensation schemes citing the lack of legal basis and its own financial situation, as it was affected by the bail-in.

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About Author

Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]