Cyprus Mail

Top court to rule on deposit freeze

By Elias Hazou

THE SUPREME Court is today set to deliver a long-awaited verdict that will shape the fate of thousands of appeals lodged by bank savers who lost part of their money in the so-called haircut.

The top court will be ruling on whether the freezing of the uninsured part of bank deposits (those over €100,000) back in March was an administrative act or a political decision.

Should it regard that decision as an administrative one, the court will then determine that it has jurisdiction to consider appeals against the act.

More than 3000 appeals against the ‘haircut’ or ‘bail-in’ have been filed before the Supreme Court by depositors of former Laiki Bank and Bank of Cyprus (BoC).
The applicants and their lawyers are calling the haircut theft of property.

They are appealing two decrees (R.A.D. 103/2013 and 104/2013), issued on March 29 by the Central Bank in its capacity as the Resolution Authority for credit institutions.

The final date for lodging appeals is tomorrow. A slow trickle of applications – beginning in the wake of the Eurogroup’s bail-in decision for Cyprus – has since swollen to over 3,000.

The applications were filed by depositors who decided to take legal action since their assets have been frozen as a result of the Eurogroup’s plan for Cyprus over-leveraged banking sector.
That plan provided for the restructuring of Cyprus’ two main banks, through the resolution of Laiki and the recapitalisation of BoC, which resulted in a massive write-off or haircut of Cypriot and foreign bank deposits.

Uninsured deposits in both banks have been frozen to resolve Laiki’s debts and recapitalise the Bank of Cyprus.

For Laiki savers, uninsured deposits went to the ‘bad’ bank along with the bank’s toxic assets. Though the cash is nominally still there, depositors won’t have any access to it for years and then only expect to receive part of their money back, depending on how much of the bank’s assets are recovered in the winding down process.

The BoC’s large depositors, meanwhile, have already suffered a haircut of 37.5 per cent which could reach 60 per cent, in a deposits-for-equity swap scheme.

The question as to whether the ‘haircut’ was a government decision or not was put to the Supreme Court by Attorney-general Petros Clerides and some of the affected depositors.

The Attorney-general argues that the decree was the result of a purely political decision at the Eurogroup, taken to avoid the disorderly bankruptcy of Cyprus.

According to Clerides, the decision concerning the two banks was a precondition for the agreement on a Memorandum of Understanding and a loan agreement for Cyprus, which, he says, constitute “international agreements.”

Therefore, Clerides says, the Eurogroup’s decision is understood as an extension of a government act and does not fall within the jurisdiction of the Supreme Court.

In the event the top court accepts this interpretation, it will dismiss the appeals before it; but for the depositors that is by no means the end of the line.

Depositors would then flock to the district courts, converting their appeals into civil action suits, said Adonis Papaconstantinou, the head of the Laiki Bank Depositors Association, known by its Greek acronym SYKALA.

The association currently accounts for around 1,000 of the 3,000 appeals filed before the Supreme Court.

“Frankly, whether the haircut was a political or administrative act is not our top concern,” Papaconstantinou told the Mail.

“Either way, the raid on deposits was just plain illegal…what happened is that one fine day, someone just decided to take our money,” he added.

Depositors are aware that their legal battle could take years, but are determined to fight on.

In addition to filing civil lawsuits here, some are considering pursuing the matter with the European Court of Human Rights in Strasbourg or to the Court of Justice of the European Communities in Luxembourg.

The Supreme Court’s decision today – whatever it is – could have ramifications beyond Cyprus, as the European Commission has drafted legislation for the recovery and resolution of financial institutions that provides for a bail-in of uninsured deposits.

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