By Elias Hazou
ALVAREZ & Marsal, the consultancy firm retained by the Central Bank (CBC) to provide various services, is reportedly ready to leave their success fee ‘to the full discretion’ of the CBC board of directors.
In a press release issued late on Saturday, the CBC said “it has been informed by Alvarez & Marsal that they are prepared to leave it to the full discretion of the Board of the CBC to assess the value of the recapitalisation fee.”
The statement added: “The company has also informed the CBC that, in their opinion, the events that have arisen during the past few days concerning the recapitalisation fee are unfortunate.”
It was not clear what the consultants meant exactly by their latest communiqué to the CBC, or whether the CBC press release relayed the A&M’s communiqué in full.
A source told the Mail that all it meant was that A&M is prepared to bring the CBC board into the loop with regard to the services contract that has since turned controversial.
“It changes little,” the source commented, adding: “A&M still want their fee.”
A&M was contracted by the CBC to advise on the restructure of the island’s stricken banking system.
In a further twist, daily Simerini writes that the CBC’s board of directors – or at least some of them – intend to pay A&M no success commission whatsoever. The reason: since the agreement struck between the consultants and Central Bank chief Demetriades was never put before the board, the agreement is void.
This purported position of the board could not be verified.
It emerged last week that CBC governor Panicos Demetriades had apparently agreed to pay the consultants a 0.10 per cent fee on any amount needed to recapitalise the banks, including when cash was seized from depositors.
The clause had not been included in the first letter between Alvarez and Marsal and the CBC – the “engagement letter” sent on December 31, 2012– but was inserted later.
Earlier, the Mail learned that on March 23 of this year – between the two Eurogroups that decided the fate of the Cypriot banking sector – A&M sent Demetriades a new letter introducing the term “success fee” for the first time.
“ … plus a success fee of 0.10 per cent (10 basis points) of the total gross capital benefit into the banking system however this is achieved. This shall be payable upon the transfer of any capital pursuant to the recapitalisation,” the letter said.
The agreement was sent to the CBC’s legal adviser Alecos Evangelou who suggested deleting the phrase “however this is achieved” and replace it with “… a success fee of 0.10 per cent of the direct capital injection from external sources e.g. European Stability Mechanism or private investors, excluding any bail-in of depositors, senior and junior bondholders or any other creditors.”
Evangelou’s recommendation, which meant that no fee would be paid if depositor cash was used to recapitalise, was ignored with Demetriades appearing to agree that A&M should collect a fee based on the rate of the haircut.
The agreement was subject to the approval of the CBC board.
On March 28, A&M Head of Global Asset Risk Hal Hirsch sent Demetriades an email with the recommendation to sign the agreement again without the clause that it was subject to the approval of the board.
The fee was to be payable on October 31. When the story first broke last week it was said that initially that A&M sought €11m but they had settled on €4.75m.
In a statement last Thursday, the CBC said it was advised by its legal counsel that it had “no obligation to pay any success fee.” The CBC said also that it had received a new letter from A&M, who stated “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.”
However, it quickly transpired that the CBC had selectively quoted from A&M’s dispatch. In fact, in the same communiqué the consultants had also made it clear that they considered to be legally entitled to a success or recapitalisation fee.
On Thursday, the Mail was also told that Demetriades personally had made A&M a counter-offer of €1.8 million although it was not clear when this had taken place.
The €1.8m proposal, sources said, corresponded 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.
The Mail understands that A&M continue to seek €4.75m as a success fee.
Meanwhile, a police probe into the goings-on at the Central Bank will expand to include determining whether the private security guards assigned to Demetriades are properly licensed.
According to Justice Minister Ionas Nicolaou, speaking over the weekend, the private security firm was hired by the CBC for Demetriades’ protection.
The bodyguards were hired after Demetriades apparently received threats after news broke of the deal with A&M.
Announcing the launch of the criminal investigation last week, the deputy attorney-general 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.
Media commentators are sarcastically remarking that at the Central Bank building today detectives will be bumping into the troika technocrats, currently on the island for a second review of Cyprus’ rescue plan.