Failure to approve Co-op deal would be disastrous, CBC warns (Update-2)

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(Updates with additional comment and background)

By Stelios Orphanides

A central bank official warned members of the parliament on Thursday that failure to implement Hellenic Bank’s agreement with the Cyprus Cooperative Bank to acquire that latter’s operations would be “disastrous” for depositors, the Cyprus News Agency (CNA) said.

“Under the circumstances, and taking into account the information available, this is the best that could be achieved,” Yiangos Demetriou, the CBC’s head of supervision told the House watchdog committee. “Let me be clear, if the deal is not completed and if all that needs to be done is not done, the alternative solution would be disastrous.”

Demetriou declined to comment on the content of the agreement between the two banks but said he was expressing “the position of the supervisory authority”.

On Thursday, the cabinet approved a bundle of bills aimed at helping banks reduce their stock of non-performing loans, complying with the European Commission’s conditions in approving the Hellenic-Co-op deal.

After the cabinet meeting, Finance Minister Harris Georgiades warned that the parliament should not delay passing the bills and should do so before the summer recess. Every year in delay that passes, costs banks hundreds of millions of euros, state-broadcaster CyBC reported citing the finance minister. He added that parliamentary parties currently asked to pass the laws had already been consulted about the bills.

The European Central Bank and the Single Resolution Mechanism, which ensures the orderly resolution of failed lenders by minimising the impact on the real economy of member states, are already preparing, Demetriou said.

“Because the only alternative solution would be to put the Co-op under resolution, or if the Single Resolution Mechanism deems that there is no issue of public interest, the Co-op would be placed under liquidation and this in turn puts insured deposits at risk,” the central bank official added.

Failure of the Co-op would be the second time a systemic bank went out of business after running out of capital. In 2013, depositors at Cyprus Popular Bank lost all their deposits in excess of €100,000 while those at Bank of Cyprus recapitalised it with almost half of their uninsured deposits.

The losses were unavoidable after parliament rejected a Eurogroup proposal for a once-off levy on deposits across the banking sector to recapitalise stricken lenders.

Demetriou’s warnings came just a couple of hours after opposition deputies either said their parties would reject bills sanctioning the deal or sat on the fence on the matter.

Main opposition Akel MP Stephanos Stephanou said in a telephone interview on Thursday that while his party considers the Hellenic – Co-op agreement as the “worst possible,” the party, which has 16 seats, has not yet discussed the matter to decide how it will vote.

Christiana Erotokritou from Diko, the second largest opposition party with 10 deputies, left open what her party would do. In a statement on Wednesday, Diko said it would send President Nicos Anastasiades a letter with questions and proposals.

Solidarity, a party with two deputies established by former Disy deputy Eleni Theocharous, said it will take its final decision after its members discuss the matter. The Greens, which have two lawmakers, said in a statement that they would reject the government bills with “suspicious” provisions submitted to parliament in “express procedures”.

On June 19, the European Commission approved the state-aid that facilitated the transactions after receiving binding commitments from Cyprus that it would reform its legal and judicial framework to allow collection from non-performing loans by both the banks and the government, which deposited €3.5bn at the Co-op against collateral that included €6bn in non-performing loans.
The Co-op which failed to reduce it stock of non-performing loans, saw €2bn in deposit outflows in the first three months of the year.

The watchdog committee was meeting on Thursday to discuss the causes that led the state-controlled Cooperative Bank, recapitalised it in 2014 and 2015 with almost €1.7bn, to be sold to Hellenic on terms deemed unfavourable by many.

Under the deal, Hellenic agreed to pay €74m to acquire the Co-op’s assets, including €4.6bn in loans, €1.6bn in cash, and €4.1bn in government bonds. It will also assume its liabilities, including €9.7bn in deposits.

A Disy lawmaker said that the only alternative to state guarantees in favour of Hellenic would be to issue government bonds equal to the amount of Co-op assets sold.

“For the sake of political expediency, we make simple things unnecessarily hard,” Marios Mavrides, who also teaches economics at the European University of Cyprus said in a telephone interview on Thursday. “We keep sacrificing the economy at the altar of populism”.

Cyprus’s government debt, which last year fell to 97.5 per cent of economic output, is expected to rise once more over the 100-per cent mark this year reflecting the aid granted to the Co-op.

Auditor-general Odysseas Michaelides told lawmakers that the audit office considered it unacceptable for the agreement between Hellenic and the Co-op not to be vetted by the Republic’s legal adviser, a point raised during Wednesday’s meeting of the House finance committee.
The finance committee reviewed a bill that will enable the government to extend guarantees to Hellenic for possible impairments resulting from the acquisition of certain co-op assets.

“We consider it unacceptable for the Republic to sign any document which has not been legally vetted by the attorney-general,” Michaelides was quoted as saying by CNA. “The Republic and any minister cannot sign documents, especially those involving such sums of money, without consulting the attorney-general”.

Also Thursday, Attorney-general Costas Clerides appointed a three-member panel to investigate the collapse of the Co-op.

 

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

  • Copernicus

    The CBC official is absolutely right and in the Greek version he mentions failure to pass the laws will lead to resolution of the Co Op, which means a messy closure. The MPs will eat humble pie and vote for the agreements as there is no other option. In other countries governments go ahead with splitting banks without too much crying over spilt milk. In Cyprus the MPs, who have failed to act over 5 years, want to have a say now that is too late. the usual blame game goes on but they may be crying over more split milk if they dare vote NO

    • Colin Evans

      I do hope that they do say no and that Co-op goes into liquidation. That would save us, the tax payers, a fortune in not having to pay out OTT redundancy payments.

      • Copernicus

        There is no way they will say know as who will pay the insured deposits of their voters? They will scream shout and will vote yes in the end. Failure to do so will put the whole banking system at risk.

        • Neroli

          There isn’t enough to cover the insured deposits anyway, there wouldn’t have enough either in 2013!

      • Mint

        Me and you both, housing bubble needs to pop again!

      • Didier Ouzaid

        You’re already paying (all those gvt guarantees dont grow on trees), and what you might not pay in redundancy payment will be doubled/tripled (whatever) if a disorderly exit occurs.

    • Rory Keelan

      Sadly you are correct – the Hellenic ‘deal’ is the last bad of an unappetizing (and strictly limited) choice on the ‘Bankruptcy Buffet’. That’s what happens when you keep dodging the issue until there are no real choices left.

  • Alkis

    For better or worse, we better stash some cash before the weekend which follows the MP’s decision.

    • Neroli

      True – a weekend coming up! You have money with the coop ‘bank’? Remove it!!

      • Wanderer

        Not just Coop. What stops them from pulling another week-long “bank holiday” like in 2013?

  • Didier Ouzaid

    “Christiana Erotokritou of Diko left open what her party would do.”

    Aint that suprising…Diko just sitting there, waiting for the whoring out process to start and the highest bidder to come through

  • Bob Ellis

    What ever the vote, the outcome is a disaster; like the rest of the banking sector and economy in general. You can reshuffle the pieces and players as many times as you like but you will always get the same result if there is no real change..’Insanity Is Doing the Same Thing Over and Over Again and Expecting Different Results’

  • Neroli

    They should have let it go under!

  • Neroli

    Don’t bother with the vote, place it under liquidation and let the depositors lose their money it’s not theirs anyway! It’s sickmaking!

  • Wanderer

    Approving it would be a disaster (another one) for the taxpayer.
    Let it go under and let those who made bad financial decisions pay for them themselves, rather than making the taxpayer pay for their mistakes.

  • Wanderer

    CBC needs to stop whining over preserving a few “too-big-to-fail” banks and liberalize the legislation and encourage a lot more banks to work in the country. Luxembourg (half of the population of Cyprus) has around 160 banks, I doubt anyone over there would cry over a few of them doing anything stupid and going under.

  • costaskarseras

    The voices of despair are getting louder and they result in blackmailing the elected members of parliament. Experience teaches that if you give in to blackmailer’s threats they will come back for more and they have been doing that.

    The members of the parliament should send a committee to study Iceland’s success in handling her economic crisis caused by her reckless bankers. However, Iceland refused the neoliberal advice to save the banks and instead saved her people’s homes.

    Advisers like Mr. Yiangos Demetriou who may have good intentions but the wrong policies are responsible for the millions of people who have been driven into poverty and not just in Cyprus but in the UK, USA, Germany, France and elsewhere. As far as the working people are concerned the banks are a lost cause.

    The people’s deputies answer should be loud and clear that not a single Cypriot family should be left without a home. We don’t want our people sleeping in the streets as in other European cities. Today, when visiting a London supermarket I saw a mattress in its open-air car park which was used last night by a homeless person.

    • JS Gost

      Cyprus to North London. The reckless bankers are not to blame. The peoples greed, the governments need to buy votes by making people debt wealthy and the EU’s complete mishandling of the economy (particularly the 2013 crisis). Rambling on about other countries and global issues is pointless. Their are failures and successes, which are all driven by the democratic process and the people involved.

      Cyprus grew too fast under awful leaders and eventually hit a wall and has not yet recovered from the accident, put a decent driver behind the wall with full control, importantly following the laws and we can have quite a good journey. At present we are accelerating fast, breaking all the laws and another wall is looming; will we survive another crash ?

  • Ιοαννις Γεωργιου

    Oh dear …wasn’t your CB governor that refuse to attend a meeting in a parliament comittee concerning co ops future just a month a go saying that the matter has nothing to do with CB ….what happened meanwhile mr Yiangos …

    • Neroli

      You mean Cristal?? Where is she by the way no ones heard of her for years

  • CloudCatcher

    Let the Co-op go bust, same way as Laiki

  • alexander reutersward

    just how bad is that bank, and considering how it past the bank test brilliantly , like BoC and Hellenic makes you wonder how bad shape they are in.

    add that huge owners in Box and Hellenic sold out…why

    is the island is on its way down for a second round