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INDEPTH: Probe into BoC’s acquisition of Russian bank

Elias Hazou

PRESIDENT Nicos Anastasiades has asked the Attorney-general to investigate the circumstances of Bank of Cyprus’ purchase of a small Russian bank in 2008.

“The President views the matter as extremely serious,” deputy government spokesman Viktoras Papadopoulos said in statement yesterday.

He said the President spoke on the phone with Attorney-general Petros Clerides, instructing him to lend any assistance necessary to a police probe – launched just days ago – into Bank of Cyprus’ acquisition of Uniastrum Bank.

A Central Bank-commissioned report made public in April found the bank went ahead with the purchase despite misgivings in due diligence reports and a legal opinion that judged it could opt-out of the deal or renegotiate the acquisition price.

The report would be assessed by the Attorney-general, the deputy government spokesman said.

The same probe had said it found no evidence of corruption.

Bank of Cyprus, now temporarily under the control of a central bank-appointed management, acquired 80 per cent of Uniastrum for €371m in November 2008.

The remaining 20 per cent share of the Russian bank is held equally by Russian businessmen Georgy Piskov and Gagik Zakaryan, both of whom were interviewed by Alvarez and Marsal – the financial forensic experts who compiled the report.

DIKO leader Marios Garoyian has been instrumental in pushing for a criminal investigation into the Uniastrum deal. During a meeting last week with the Attorney-general, Garoyian had urged Clerides to look into the Uniastrum affair.

Garoyian had then told newsmen that the Alvarez and Marsal report on the purchase of the Russian bank contained “signs and wonders,” but also provided Clerides with additional information.

Shortly after that meeting, the Attorney-general contacted the police chief and they agreed that the police would investigate.
The A&M report cited a number of issues which it suggested cast a shadow over the 2008 purchase of Uniastrum.

Among others things, it suggested the timing of the transaction was far from ideal, coming just two months after Lehman Brothers filed for bankruptcy.

It also questioned the soundness of the purchase, given that in late 2007, 25 out of Uniastrum’s 43 branches were loss-making.

The financial forensic experts said in 2008 Bank of Cyprus “considered, but did not act upon” legal advice they received from their legal advisors, White & Case LLP law firm, advising the Cypriot bank to either renegotiate the purchase price or withdraw from the acquisition.

What’s more, some of the due diligence findings, prepared by Ernst & Young, “appear not to have been included/clearly reported in the [Bank of Cyprus] board of directors presentation of June 26, 2008.”

And “some members of the BoC board of directors felt they did not have sufficient time to adequately scrutinise the due diligence findings prior to board approval of the transaction.”
A&M also called attention to the role of the banking regulator, pointing out that the Central Bank of Cyprus “approved the transaction before Ernst & Young prepared their closing due diligence report.”

The forensic experts noted that Bank of Cyprus had lent funds to and purchased loan assets from Uniastrum prior to acquisition, effectively to prop up the bank. It is not clear that the BoD was aware of this funding.”

A&M made mention of an escrow account mechanism, integral to the acquisition, noting that the account did not make adequate provisions for bad debts.

Meanwhile Charilaos Stavrakis, a banker who served as finance minister during the time in question, told an ongoing inquiry yesterday that he personally felt Uniastrum’s share price was overrated and that the Bank of Cyprus had paid too much.

Much has been made in the local media that kickbacks were given to persons to facilitate the Uniastrum deal.

The allegations, which so far appear to be confined to hearsay and not hard evidence, were covered by A&M in its report.

“During our investigations we have received confidential statements that we construe as rumours that corrupt payments were made in relation to the Uniastrum acquisition,” A&M said.

“The rumours were similarly related to a total amount of €50m being distributed from the sale proceeds to five separate individuals.”

But the experts went on to say they found “no evidence to substantiate rumours of corrupt payments in relation to the transaction.”

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