Finance minister says Hellenic guarantees manageable

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By Stelios Orphanides

Finance Minister Harris Georgiades said that the government guarantees to Hellenic Bank, part of its agreement to acquire the Co-op’s operations, are fiscally manageable, the Cyprus News Agency (CNA) reported on Wednesday.

Revenue from the legacy Cyprus Cooperative Bank, a body tasked to initially manage €7bn in non-performing loans of the failed lender that will come under the ownership of the state following the completion of the deal with Hellenic bank, will cover contingent liabilities. These may result from the €1bn in guarantees against impairments from a possible underperformance of assets acquired by Hellenic, Georgiades told members of the parliamentary finance committee on Wednesday.

“The body will absolutely be in position to pay for possible unexpected impairments without the second guarantor, which is the state, having to jump in,” the finance minister was quoted as saying.

He said that the legacy Co-op will have several hundred million euros in revenue and that only the failure of the Co-op to pay will trigger the guarantees, unlike the case of guarantees extended to loans taken by persons displaced from the northern part of the island in 1974 and their descendants, the finance minister said. In those cases, the government is directly guarantor.

In the case of €6bn in guarantees extended in 2011 and 2012 to banks, there was need to cover only €1bn, he said.

As a result of the issue of €2.4bn in government bonds in favour of the Cyprus Cooperative Bank in April, government debt which fell last year to 97.5 per cent of economic output, has once more increased above the 100 per cent mark. In 2014 and 2015, the government recapitalised the bank with 1.7bn. The transfer of the Co-op’s non-performing loans to the state will substantially reduce the number of delinquent loans in the system of around €22bn or 45 per cent of the total.

The finance minister said in response to a question by Akel lawmaker Irene Charalambidou concerning the appointment of the Freshfields Bruckhaus Deringer law firm to advise the government in the transactions with Hellenic that its selection resulted because of previous cooperation it had had with Cypriot authorities in matters of state guarantees.

Charalambidou said that the firm is representing Greece’s MIG Group in an arbitration case filed at an arbitration court in Paris. MIG was run by the late Andreas Vgenopoulos, widely considered responsible for the demise of the Cyprus Popular Bank.

This company was hired during the tenure of former finance minister Vasos Sharly to advise on guarantees extended to Cyprus Airways, he said, adding that the Association of Cyprus Banks also hired Freshfields Bruckhaus Deringer.

“It is the firm that secured us the commission’s approval,” he said. “Concerning MIG, I only hope that the lawyers we appointed are equally good,” he said.

The finance minister said that the current bank run on the Co-op will have a neutral impact on its balance sheet as withdrawals reduce liabilities in the form of deposits and at the same time assets, in the form of cash, he said.

Communist party Akel criticised the absence of Attorney-General Costas Clerides, the Republic’s legal advisor, from the discussion at the finance committee.

Clerides snubbed an invitation to do so citing the government’s failure to request his feedback on the deal with Hellenic and in particular, the guarantees.

 

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About Author

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

  • JS Gost

    Caption competition for the photo anyone. I open with Harris saying ‘the fiscal reserves for the country are a pile of fifty’s almost this high’

    • Barry White

      ” It’s only money, someone, anyone else’s money. Honest.”

    • Jeremy Rigg

      “You are this far away from total wipeout”………….I thought more to the point.

    • Kevin Ingham

      “Between my thumb and forefinger I hold a magical cure for all our economic problems, but if you are stupid you won’t be able to see it”

    • I’m a whistling crab look ! Answer the question please, nip nip wheeeee.

  • Philippos

    “Give me a gold star for this fantastic deal and i’ll show you how to make a Turkish Flag” However, now we see the political point of the Transaction, it operates to take a large chunk of NPL’s from where they are counted to where they are not. So that’s a result then?

    • Bernard Smart

      dont worry its only this little bit extra we will be taking off the taxpayers

  • Kevin Ingham

    The “plan” for dealing with the NPL’s is rapidly degenerating into a populist farce in which the (bankrupt) state of Cyprus is going to underwrite all the banks outright losses, and subsidise the rest to stop them becoming outright losses. It’s “economics of the madhouse” on steroids, on stilts

    • Wanderer

      In other words, mortgaging the unborn.

      • Kevin Ingham

        In effect yes, but Euro fiscal rules really ought to be preventing it now and forcing the government to address the imbalances now.

        Problem is addressing the imbalances “now” will bankrupt the country “now”, so kick the can a bit further down the road and hope the sh#t hits the fan on some other government’s watch (and it will)

        However they are not only mortgaging the unborn.

        They are denying the current generation the finance and an even playing field to create their own wealth making business and industries, simply to protect the same bunch of failed crooks that caused all the current problems and who are the ones most benefiting from the selling of state property (passports) and building ugly, white elephant real estate in prime locations to carpetbaggers

        • Wanderer

          Exactly.

  • Bystander

    “Run, Forrest, run”

  • Wanderer

    Good God. They are at it again. “There will be no haircut.” — The Prez of Cyprus in March 2013 the day before the haircut.

    • SuzieQ

      Has our president made a comment yet?

  • Mike

    I actually agree with Mr Georgiades in that guarantees to Hellenic are fiscally manageable but do so disagree with the procrastinating on reducing NPL’s. I accept the main culprits are political donors, friends and relatives but even down to the man in the street we do have to take responsibility for our debts. Thankfully we have raised north of €4 billion from citizenship sales and property sales are booming in and around Limassol but we must stop continually issuing bonds to raise cash as that is only stealing prosperity from future generations. What right do we have to indebt our children and childrens children for generations to come. Thankfully we do not have the trillions of debt a lot of others have (in the misguided belief that they are wealthy) and our debt has been falling since its peak in 2014/15. Still needs lots of improvements though in respect of debt guarantors being held responsible for debtors and NPL holders being made to service or clear their debt by way of asset sales.

    • Bruce

      How can you say that the guarantees extended to Hellenic are fiscally manageable when we do not know the details of these guarantees. Under what conditions will guarantees be exercised and how costly will they be the Government budget.? And where will the Government revenue come from to offset the costs? From the taxes on the capital gains made by the main shareholders of Hellenic!

  • almostbroke

    Whats with the ‘Government ‘ guarantee , it’s the ‘taxpayers ‘ guarantee as always . I wish these people like Georgiades would describe it as such , there is no ‘Government ‘ money

  • Bruce

    The utter ignorance and incompetence of Minister Georgiades is revealed by his statement that ” the current bank run on the Co-op will have a neutral impact on the balance sheet as withdrawals reduce liabilities in the form of deposits and at the same time assets in the form of of cash”.But if the starting point is not neutral in the sense that deposits greatly exceed cash and excess reserves at the Central Bank you end up at least with a liquidity crisis in the event of a deposit run. It is noted that the latest financial statements for September 30 2017 show assets of 112 million euro in cash and 3.2 billion euros in deposits at the Central Bank part of which serves as minimum reserves, and deposit liabilities of 12 billion euro.
    We know that deposits of at least 2,2 billion euro have been withdrawn since September 2017 but that cash replenishment by the Government was less than 500 million euro. This is hardly a neutral scenario which should be of little concern to bank customers as the Minister implies.

  • Bernard Smart

    now you see it now you dont!
    €7bn in NPL’s simply disappear because they are not on a banks balance sheet and are not reported to the ECB. who are you trying to kid?
    dig deep you taxpayers that’s only a trivial amount and rest assured that all those shysters who wont pay there debts will be eternally grateful for the free house and car.

  • almostbroke

    And I see Maggie’s comment ‘ the problem with Socialism is they soon run out of other people’s money ‘ equally applies in Cyprus to ‘populism ‘ !!!!!!