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A&M letter points back to CBC governor

Police officers at the CBC on Friday

By George Psyllides

A CONSULTANCY firm hired by the Central Bank (CBC) has said that the €4.57 million “success fee” it insisted on collecting was within the range Governor Panicos Demetriades had  suggested was appropriate, it emerged on Friday.

In an October 23 letter to the CBC board of directors seen by the Cyprus Mail, Alvarez and Marsal insisted that they were legally entitled to a success fee.

“Importantly, the proposal €4.75 million stated in our September 19, 2013 correspondence was within the range we were advised by the Governor would be appropriate,” A&M’s letter said.

Demetriades had leaked to the media that he had signed the agreement under duress.

A&M had allegedly threatened to leave on March 28, the day before the banks opened after some two weeks following the Eurogroup decision to seize deposits, reports said.

“It was understood from the commencement of our recapitalisation services that a part of A&M’s fee structure would comprise a success-related element.The success fee was understood to be formula-based and specifically not upon calculations or analyses generated by others, including PIMCO (the company that audited the banks’ portfolios to determine their capital requirements).” A&M said.

A&M was contracted by the CBC to advise on the restructure of the island’s stricken banking system.

A&M’s letter was prompted by a statement issued by the CBC on Wednesday (October 23), that according to its legal counsel, it had “no obligation to pay any success fee.”

“We do not agree with this assertion. The legal advice that A&M has received is that there is a clear legal entitlement to a success fee,” Hal Hirsch, the company’s Head, Global Asset Risk Services said in the letter.

A&M also said that when it entered into the “recapitalisation agreement” it never intended to receive compensation from bailed-in funds – deposits seized to recapitalise banks.

The latter was the only part of the letter the CBC chose to make public on Thursday: “The Central Bank of Cyprus (CBC), following yesterday’s press release relating to the compensation of a success fee to Alvarez & Marsal, announces that Alvarez & Marsal, in a letter sent to the CBC today, states that at the time of the agreement there was never any intention of requesting compensation from the bail in and this continues to be the firm’s position.”

Later on Thursday, a source told the Cyprus Mail that Demetriades had offered A&M €1.8 million although it was not clear when this had taken place.

The €1.8m proposal, the source said, corresponds to 0.10 per cent of the combined €1.8bn needed for recapitalising the co-operatives (€1.5bn) plus the estimated €300m that Hellenic Bank needs in new capital. Unlike Laiki and Bank of Cyprus, which were bailed-in, the co-operatives were bailed out.

In their letter, A&M urged the CBC board to resolve the matter “under this protocol as being fair, equitable and in the best interests of all. We request the urgent engagement of the board of the CBC and a meeting to reach agreement.”

The A&M agreement was meant to be discussed by the CBC board on Friday afternoon but the meeting was cancelled by Demetriades who cited a criminal investigation into the affair.

The investigation was launched on Thursday and yesterday morning investigators visited Demetriades and took his statement.

Announcing the investigation, deputy attorney-general Rikkos Erotocritou said it would  look into charges by Demetriades that confidential documents had been leaked to the media, but also potential document forgery, and deception of board members.

When the story first broke on Wednesday, it appeared that Demetriades had agreed to pay A&M a 0.10 per cent fee on any amount needed to recapitalise the banks, including when cash was seized from depositors. It was said initially that A&M wanted €11m but they had  settled on €4.75m.

The fee was to be payable on October 31.

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