Cyprus Mail
Business Cyprus

‘Turf war’ underway for BoC board

Central Bank Governor Panicos Demetriades

By Elias Hazou

CENTRAL Bank governor Panicos Demetriades yesterday held separate consultations with Bank of Cyprus (BoC) stakeholders to discuss names for the bank’s new board of directors, to be elected during an annual general assembly scheduled for early next month.

September 5 is the deadline for submission of candidacies. The central banker met with the Laiki Bank Depositors Association – known by its Greek acronym SYKALA – who are a part of the Laiki ‘legacy’ creditors who altogether hold an 18 per cent stake in BoC.

SYKALA head Adonis Papaconstantinou told newsmen the association submitted to the Central Bank chief a list of persons they were proposing for the BoC board. “We are seeking a role and a say in the bank,” he said. Some of the names included foreign nationals, Papaconstantinou added. A new meeting was arranged for next Tuesday.

Also yesterday, Demetriades saw a group of Cypriot law firms representing mainly Russian and Ukrainian uninsured depositors with BoC.

Under a decision in March to ‘bail-in’ Cyprus’ two largest lenders, BoC and Laiki, losses were imposed on large savers in both banks. Laiki is being resolved, with all of its liabilities (including deposits) and some of its assets folded into BoC. The latter has been recapitalised by seizing large savers’ cash via a deposit-for-equity swap. Old shareholders were wiped out, with the bank’s creditors now forming the new shareholder base.

BoC is currently run by an interim board and CEO, appointed by the Central Bank. Although BoC’s new shareholder base is not yet fixed, media reports say that 29 per cent of stock belongs to Cypriots, 18 per cent to the ‘legacy’ Laiki, 41 per cent to foreign nationals and another 12 per cent to foreign depositors represented by Cypriot law firms.
While Laiki is being wound down, its interests have been placed in the care of an administrator.

Legacy Laiki creditors now own stock in BoC via the equity-for-deposit swap – but only on paper. They cannot sell their shares until the ‘bad’ Laiki has been resolved – a process that could take years. Only once Laiki has been wound down, and the liabilities have been weighed against assets to determine what – if any – equity remains, will these BoC shares be assigned a value and their holders be allowed to dispose of them as they like.

Which means that for the foreseeable future the shares of the legacy Laiki creditors are legally in the custody of the Laiki administrator, Andri Antoniadou. It’s a murky state of affairs causing a great deal of consternation to depositors, not least due to the fact the Laiki administrator was appointed by the Central Bank governor.

Some fear the administrator might come under the thumb of Demetriades and execute his agenda rather than look out for the interests of former Laiki depositors who currently hold a stake in BoC.

What’s more, bankers and politicians sense that Demetriades has co-opted the role of arbitrator in negotiating with the various stakeholders who will sit on the board of BoC.
Under normal circumstances, a bank will nominate candidates for its board; the names are then vetted by the Central Bank, to determine whether the nominees are ‘fit and proper’, in line with European Banking Authority regulations and guidelines.

The competent authority – the banking regulator – has the power to object or even to reject nominees.

This process has now apparently been reversed.

“They’re putting the cart before the horse,” said a senior banker. “Why is the Central Bank governor talking names when he is going to vet them anyway later on?”

DISY MP Prodromos Prodromou yesterday accused the Central Bank chief of a conflict of interest – the regulator of the banks cannot simultaneously be implicated in the selection of bank directors whose performance he will later supervise.

“It’s a question of separation of authority,” Prodromou said in a statement.

Although there is no law stopping the Central Bank governor from discussing the composition of BoC’s future board, this behaviour from Demetriades was ‘unethical’, the DISY deputy added.

“BoC is no longer under administration, it has not received any state aid, for example via a bailout…so why is a public authority like the Central Bank meddling in who gets to sit on the board? This should be a private matter,” Prodromou told the Mail.

Another banking source, who also requested anonymity, suspects Demetriades wants to pre-empt the selection of board members for BoC.

“He’s acting like a broker. He’s using the fact that he indirectly controls the 18 per cent stake in BoC, through the Laiki administrator, as leverage on the stakeholders.”

That’s one of two ways he can exert influence; the other being his power of veto over nominees for the BoC board.

The bank’s charter stipulates that the board comprise no less than 10 and no more than 18 members. Also, under new rules the majority of the directors must be independent.
Independent directors are distinguished from executive and non-executive directors in that, unlike them, they are not allowed to hold shares in the company.

“It’s a turf war…if Demetriades can manoeuvre six or seven of ‘his’ people onto the board, that’s it, he’ll be calling the shots,” the same sources said.

It’s understood that the Laiki administrator, Andri Antoniadou, is interested in a position on the BoC board. But Laiki ‘legacy’ holders argue that the Central Bank-appointed administrator cannot vote or take decisions on behalf of the whole block.

One suggestion put forth has been for proxies to be given to the uninsured depositors and other ‘bad’ Laiki creditors to enable them to vote for the new directors.

Former Attorney general Alecos Markides, the legal counsel for SYKALA, has proposed having a common body to act on behalf of all former Laiki depositors.

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