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Our View: Why were Alvarez and Marsal given so many jobs by the CBC?

THE TESTIMONY given by former executive of the Bank of Cyprus Nicholas Karydas to the investigative committee for the economy may have been primarily intended as a defence of the accusations levelled against him, but it raised some very interesting points.

We are not referring to his revelations about Demetris Christofias and Andros Kyprianou demanding and securing more favourable terms on bank loans taken out by Omonia and its former chairman. Members of the Bank of Cyprus hierarchy always had a cosy relationship with the communists of AKEL, writing off loans of millions of pounds, owed by party controlled companies. And AKEL chief Andros Kyprianou’s wife is not the only relative of a big-wig communist employed at the bank.

Much more interesting were his comments about the relationship between the Governor of the Central Bank and Alvarez and Marsal (A&M), the consultancy firm brought in to investigate irregularities at banks. Admittedly, Karydas has an axe to grind as it was the Governor, Panicos Demetriades, who instigated his sacking. But who could argue with his claim that A&M had instructions from Demetriades to investigate the Bank of Cyprus rather than Laiki, which was had been led to insolvency by Andreas Vgenopoulos’ mismanagement?

This was admitted in A&M’s report, showing that Demetriades had his own agenda. This was also supported by his instructions to PIMCO’s technocrats to complete its study on the capital needs of the BoC without any consultation with the bank’s senior management. Consultants always follow the instructions issued by the person that pays their hefty fees.

A&M received big amounts of money from the Central Bank as it carried out several big jobs. Apart from its independent investigation, it was also given the contract for managing the recapitalisation of the banks, the merger of Laiki and BoC and the negotiations of the sale of the latter’s operations and assets in Greece. As Karydas said in his testimony, these contracts, worth many millions of euro were given to A&M by the Central Bank without tenders’ procedures. Why? Was there not an issue of conflict of interest?

By having one company to conduct all important tasks regarding the banking sector, he ensured against any of his mistakes surfacing – another consultancy firm could have pointed these out. Demetriades could have directed A&M, as its paymaster, to pursue solutions that were on his agenda but not necessarily in the interests of the banking system. It was revealing to hear that A&M employees negotiated the scandalous sale of the BoC’s operations in Greece, which led to the transfer of assets from Cyprus to Greece, estimated in the region of €3bn. A&M would collect its fee regardless of how bad the deal was for Cyprus and Demetriades would have achieved his objective of making the survival of the BoC more difficult.

There should be an investigation – perhaps the Auditor General should look into it – to establish why the Central Bank awarded so many jobs to A&M without asking for tenders, which is a must for state organisations.

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