Cyprus Mail

BoC shareholders have suffered enough

I do not wish to join the blame game about the causes of the Bank of Cyprus entering into resolution, but about the unfair treatment of its shareholders by the reduction of their shareholding to one-hundredth of the original. I am one of those shareholders who feel especially aggrieved because I responded willingly to the bank’s call on its shareholders to help recapitalise it in 2012 by purchasing hundreds of thousands of bonds and shares. It is absurd to suggest that my recapitalisation euro is worth one hundred times less than the ‘’haircut’’ euro.

But sadly this is what our so-called Resolution Authority has decided, having failed in its initial effort to create four different classes of shares – something not provided for in the Basel Accord. They are trying to turn us long-term supporters and would-be rescuers of the bank into second class shareholders with hardly a vote and no voice on the Board.

Admittedly, the Basel III Accord (not yet phased in) states that in the event of major losses the shareholders take the first and largest hit. However it is not mentioned anywhere what percentage of the loss they should bear, and who should decide on the scale of the losses.

It could be argued that by suffering a reduction of market  value from around €12.00 in 2007 down to € 0.20 in 2012 the shareholders have already incurred a loss of 98.7 per cent of their worth. Further unwarranted attacks on their investment capital can only create enemies and remove the last traces of confidence in our biggest lender and wealth-creator of the last 100 years.

Before the Bank was put into resolution it did not need to do so because it was solvent and had an ‘’Equity Attributable to the Owners of the Company’’ ie the current shareholders, consisting of Shares, Convertibles, and retained profits, standing at around € 2.2 Billion. Furthermore, according again to the last published results of September 2012, the Bank had a healthy Deposits / Loans ratio. Loans stood at € 25.98 billion, well exceeded by the deposits of € 27.87 billion.  If the Bank had been liquidated at the time, the shareholders would have received at least the face value of one euro, and the depositors would have received all of their cash back. The major disasters befell the Bank after the Greek operations were almost given away free, and the bank was lumbered with € 9 Billion of Laiki’s emergency liquidity obligations.

I do not believe the shareholders have any blame whatsoever in the disaster. The directors had put into place an elaborate and comprehensive system of risk management described over 25 pages in the annual financial report of the bank for 2011 presented at the 2012 AGM. This had been developed over eight years with the help of McKinseys consultancy firm, and is comparable to that employed by some of the world’s leading banks.  The reasons that € 1.9 billion in capital were lost in GGB write-downs have been the subject of extensive reporting by Alvarez and Marsal and countless public interviews, but nowhere have I seen any mention of shareholders’ blame.

The only sensible remedy for the ill-advised decision artificially to impair the shares of BoC by a further 99 per cent, is to reverse the decision and make all shares, both existing and new (haircut shares) equal to one euro as is fair and reasonable.

Failure to do so will destroy thousands of blameless small, medium, and large  family and business investors who for generations have counted on BoC shares as a source of dividend income and emergency liquidity.

It will alienate the 90,000 Shareholders who have long supported and capitalised the bank, and who are also customers of the bank. Why should they now stay on as customers — let alone new investors? It will also act as a disincentive for future investors in the bank. What security can they feel if their investment can be arbitrarily cut by 99% on the whim of an authority? And finally it will

remove a valuable portfolio of maybe several hundred millions in Loan Guarantees in BoC shares, pledged as collateral against borrowing. The resulting un-backed NPL’s would probably necessitate another wave of recapitalisation.


Hopefully the Interim Board of the Bank of Cyprus will see my point and act before it is too late, and certainly before the AGM in September. The shareholders have suffered enough, and may not remain passive for much longer. Unless the problem is addressed urgently, the current owners of the Bank, who are the only voluntary ones, will turn from 90,000 allies into an equal number of bitter adversaries.


Christakis Christofides, Businessman and Shareholder, Nicosia

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