By Stelios Orphanides
CNP Assurances and its Cyprus unit CNP Cyprialife resorted to the London Court of International Arbitration seeking compensation from Bank of Cyprus on grounds that the latter is not adhering to the terms of an agreement signed by the French insurance company and Marfin Popular Bank in 2008.
Marfin Popular Bank was the official name of Cyprus Popular Bank, widely known as Laiki, at the time.
Under the terms of Cyprus’s 2013 bailout agreement, Bank of Cyprus merged with Laiki and took over all its assets and liabilities, including Laiki’s stake in CNP Cyprialife. CNP Assurance agreed to buy 50.1 per cent of CNP Cyprialife in 2008 and the deal was finalised in January 2009.
“Our side believes that together with the shares, Bank of Cyprus also assumed the obligations Laiki had towards CNP Assurances,” a person with knowledge of the situation said in a telephone interview on condition of anonymity.
“There were two obligations,” the source said. “First, Laiki would exclusively distribute our products, and second, if Laiki failed to distribute our products as agreed, CNP Assurances is entitled to sell back its 50.1 per cent stake in the company at a price, calculated based on a certain formula,” the source added without elaborating.
“As a result, there are two claims worth more than €100m each, one because Bank of Cyprus is not distributing our products and the second related to the lost right to sell back the shares to Laiki,” the source said.
Bank of Cyprus, which is also operating in the insurance business with its units Eurolife and General Insurance of Cyprus, was unavailable for comment.
According to a statement on the CNP Assurances website dated July 22, 2008, Laiki agreed to sell CNP a 50.1 per cent holding in its insurance unit Laiki Cyprialife as part of a “10-year renewable exclusive distribution agreement” with an extension option in the countries in which Laiki was then operating, including Greece.
“As a result of this agreement, Marfin Popular Bank (Laiki) will receive from CNP an up-front consideration of €145m, plus an earn-out of about €20m linked to business objectives,” the CNP Assurance statement said. “The structure of the transaction will also involve a pre-dividend payable to Marfin Popular Bank of €20m. This self-financed transaction will have a positive impact on CNP’s earnings per share from 2009 and will be neutral from a solvency perspective”.
The CNP Assurances statement added that Laiki was expected to post a pre-tax capital gain of approximately €60m from the completion of the transaction.
According to a separate statement on the CNP Assurances website, CNP Cyprialife lost less than €10m in 2013 under the terms of Laiki’s restructuring. The figure includes a 27.5 per cent writedown on uninsured deposits held at Laiki by the insurance company, a source familiar with the situation said.
Under the terms of the bailout, depositors at Bank of Cyprus lost 47.5 per cent of their deposits in excess of €100,000 while those at Laiki lost all their uninsured deposits.
The outcome of the application, half a year ago, is expected to be issued before the end of 2016.