By Elias Hazou
THE Central Bank of Cyprus (CBC) never authorised the merger of Greek lender Marfin Egnatia with now defunct Laiki Bank, lawmakers heard again yesterday.
A court order issued in December 2010 gave the final go-ahead for the merger, although this step was a mere formality because by then the transaction was basically a done deal – the involved banks had already agreed.
The merger meant the Cypriot government had to include the liabilities of the Greek operations when asked to bail out Laiki in the summer of 2012.
As a result of Laiki’s subsequent demise, the island’s banking system is said to have incurred losses of at least €4.0 billion.
That episode in Laiki’s history has generated a great deal of political controversy. Former ruling party AKEL alleges that the previous leadership of the CBC is to blame for okaying what later proved to be a disastrous move.
To set the record straight, MP and chairman of the House finance committee Nicholas Papadopoulos (DIKO) asked the Central Bank whether it had at any time given permission for the merger.
Responding to Papadopoulos in writing, a CBC official said that no such authorization was granted as none was needed under the relevant law.
The CBC said also that, during court proceedings here concerning the application for the merger, the only state official to appear in court was a representative of the Registrar of Companies.
Papadopoulos said that from the written response it was clear the Central Bank had nothing to do with the process.
Rather, he opined, permission for the merger was granted by the previous administration of Demetris Christofias, via its state official, the Registrar of Companies.
Papadopoulos added, however, that the fact permission was not required from the Central Bank highlights a deficiency in the current law, which legislators must address.
Weighing in, DISY deputy Prodromos Prodromou said the conclusion to be gleaned is that there exists insufficient supervision over the banking sector.
“It is a systemic problem, a lapse which the previous government did not spot either,” he said.
AKEL withheld comment on the CBC’s letter of response until it is officially submitted to the House finance committee.
An investigation by forensics and dispute services firm Alvarez and Marsal had found that there was not much Athanasios Orphanides – the Central Bank governor at the time in question – could have done about the merger.
“The structure of the regulation and legislation is such that under the Mergers Directive the bank did not require any authorisation from the CBC, this resulted in the bank being able to transfer the assets and liabilities to Cyprus without approval from the CBC,” a findings report said.
The CBC was left with one option, the firm said, either to accept the conversion of the Greek subsidiary or force the bank to cease operations in Greece.
“Given the desire to maintain the bank’s headquarters in Cyprus and the perceived regulatory benefits, the CBC notified the BOG (Bank of Greece) of the creation of Marfin Popular Bank’s branch in Greece,” A&M said.