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Business Cyprus

Staggering pay, but no risk culture, econ inquiry told

Manthos Mavrommatic, honourary chairman of CCCI

By Elias Hazou

SOME OF the top executives at Bank of Cyprus (BoC) were taking home close to half a million euros during the lender’s heyday, the panel probing Cyprus’ financial meltdown heard yesterday.

Yet the hefty bonuses, though linked to profitability, did not encourage a risk culture, former bank officers insisted yesterday.

They also repeated the mantra that the bank’s purchase of Greek government debt – which later crashed and burned – seemed a good idea at the time.

The bank’s ex-CEO Andreas Eliades, who resigned in July 2012, earned €324,000 in salary and €273,600 in bonuses.

The data relates to the period 2005-2008, during which Andreas Pittas – testifying before the panel yesterday – sat on the bank’s remuneration committee.

Meanwhile BoC group chief general manager Yiannis Kypri got a paycheque of €213,750 plus €128,250 in bonuses. Charilaos Stavrakis, appointed chief executive officer for Cyprus operations and deputy group CEO in 2005, earned wages of €242,820 and a bonus totalling €171,000.

And according to Pittas, the top execs’ earnings rose further in subsequent years – amid the global financial crisis.

In 2004 the bank commissioned McKinsey & Co consultants to review the remunerations. The consultancy recommended a salary cut for Eliades and a raise for Kypri and Stavrakis. They also proposed higher incentives for bonuses in a bid to boost bank profitability.

Profit-making was one of the criteria governing bonuses, Pittas said. Though acknowledging that these amounts may sound outrageous today, he said that at the time they were in line with top bankers’ remuneration in other countries, like Greece.

Anna Diogenous, head of the remuneration committee from September 2008 to June 2010, dismissed the notion that pay policy at the bank encouraged risk-taking.

“Both the executives and the board members were extremely careful,” she told the panel.

Quizzed about the bank’s purchase of Greek debt in late 2009-early 2010, Diogenous said that at the time Greek government bonds (GGBs) had a good rating and were considered ‘a safe investment’.

Manthos Mavrommatis, who chaired BoC’s remuneration committee from 2010 to 2012, had a slightly different take on the bank’s buying up of GGBs.

In retrospect, he said, the acquisition of GGBs at the time was risky, even though the European Central Bank deemed the bonds as risk-free.

No one then anticipated the ultimate extent of the write-down of the Greek bonds, he added.

Mavrommatis said that in his opinion, BoC did apply sound corporate governance.

“But implementing regulations is one thing and the lack of culture quite another,” he said.

Mavrommatis noted also that the bank lacked a single private investor with enough muscle on the board to ‘offset’ the influence of executives.

A report by financial forensics experts Alvarez & Marsal found that in late 2009 and early 2010 BoC spent billions of euros buying Greek bonds – at a time when international banks were cutting exposure to the heavily indebted Athens government.

Those Greek bonds lost most of their value in last year’s EU-sanctioned bailout, playing a key role in plunging Cyprus into an economic maelstrom.

The report said that executives may not have revealed details of bond purchases to board directors, avoided showing losses on the bonds, and may later have delayed external investigation of the bond purchases.

In December 2009, managers told media and their own board that most of the bank’s Greek bond holdings had been sold – but the bank did not then disclose that it had almost immediately bought more.

By April 2010, the bank had expanded its holding of GGBs to €2.4 billion, a third more than the amount Kypri had told Stockwatch had been sold four months before. The investigators said this went beyond the bank’s own approved €2 billion limit but was approved retrospectively in May 2010.

The same report noted “a culture whereby senior management decisions were not challenged”.

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