ONCE, it was the wealthiest and healthiest company in Cyprus, in the shares of which people put their savings, the rock-solid foundation and engine of the economy. Now, the Bank of Cyprus is but a shadow of its former self, a struggling bank with an uncertain future that has become one of the main subjects of public debate. Everyone seems to be asking whether the Bank of Cyprus would survive or, worse still, how many months it has left.
Nobody really knows what the position of the bank is at present, even though press reports have been painting a gloomy picture, suggesting a continuous outflow of deposits in spite of the capital controls in force. No matter how adequately it is capitalised, via the bail-in of deposits, it seems unlikely the bank could survive the lifting of the controls. How could it, given the way its problems were handled by the ECB and the Eurogroup which seemed determined not to give it a chance, loading it with Laiki’s €9bn ELA debt and forcing the fire-sale of its operations in Greece.
How much confidence could there be in a bank, lumbered with so many handicaps and denied the ECB support that could see it through the difficulties it is facing? The bigger problem is that nobody in Cyprus has done anything to help the bank regain some of the confidence it has lost, even though this is no easy task. Politicians declare occasionally that everything possible must be done to save the Bank of Cyprus and they are right because if it collapses, almost everything that is still standing would go down with it.
As always, there is a big gulf between words and actions. We have not seen too many actions aimed at saving the bank. Instead, there has been a struggle between the Central Bank and the government over control, with the former maintaining an iron grip and the latter trying to pass legislation that would reduce the powers given to the Governor by the bank resolution law. The ECB became involved in this row, issuing an announcement on Thursday, decreeing that the independence of the Central Bank had to be safeguarded.
This would have been understandable had the Central Bank been acting decisively, but it has not, delaying decisions, constantly reacting to political demands, engaging in public relations exercises and generally showing that it was not in control of the situation. It took very long to appoint a board of directors and under political pressure arranged the hiring of a CEO for four months, an appointment that was unnecessary given that all decision-making powers rested with the special administrator who, according to the resolution law, is the bank’s highest authority.
Meanwhile the restructuring, the completion of which would allow the bank to return to some kind of normalcy, is moving at a snail’s pace, as the bank employees’ union ETYK has been trying to impose its diktats, with regard to pay-offs for the early retirement scheme, the number of staff lay-offs and the level of pay-cuts. The union is also trying to force the bank to cover the losses – in the region of €80m – suffered by the employees’ provident fund in the bail-in.
After the merger with Laiki, the bank is currently stuck with 5,600 employees and 200 branches. It has still to impose pay-cuts and instead of closing down the Laiki branches it has simply put the Bank of Cyprus signs on them. Reports suggest that these would be reduced by 20 and about 1,000 staff would take early retirement as the union does not permit redundancies. There is a growing suspicion that these decisions are the government’s which is pandering to ETYK. It is no coincidence that neither the government nor any of the politicians, anxious about saving the bank, have dared talk publicly about the need for drastic pay-cuts, for the closure of half the 200 branches and double the redundancies than those sanctioned by the union.
When the most basic decisions regarding the restructuring of the bank cannot be taken and the government is bickering with the Central Bank over control, while both are pandering to the greedy ETYK boss, what hope could there be of survival for the Bank of Cyprus? And on Friday things took a turn for the worse, when a Supreme Court decision opened the way for thousands of claims for compensation to be filed in the district courts against the bank, by depositors who lost money in the bail-in. What chance of survival does a bank facing claims amounting to billions really have?