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Former CBC boss withheld recapitalisation report from new government

Panicos Demetriades

By George Psyllides

Former Central Bank governor Panicos Demetriades withheld a report suggesting the island’s banks needed less money to recapitalise because the issue was too technical for top officials to understand, the New York Times reported on Friday.

According to the paper, a study carried out by investment managers BlackRock had found that the lenders’ needs were €1 billion less than what bond giant Pimco’s estimate of €8.8 billion.

It was this estimate that eventually led international lenders to demand that banks recapitalise by seizing deposits.

There were numerous reports in the local media at the time suggesting that the PIMCO findings had been inflated, though the BlackRock study had been kept secret, even from the island’s new political leadership, which was trying to negotiate a bailout deal.

Demetriades rejected the claim that the forecasts were inflated.

“The assumptions relating to the Pimco adverse scenario have unfortunately been surpassed,” he told the New York Times. However, it is understood that PIMCO’s adverse scenario did not include closure of a bank and deposit seizure, which made the situation worse.

As to why he did not tell the new government about the BlackRock study, Demetriades, according to the New York Times, suggested the issue was too technical for top officials to understand and that the report was not in its complete form when crisis negotiations began in March 2013.

Former finance minister, Michalis Sarris, who led the bailout talks, said they knew nothing about the report, which should have been on the table if it indicated that banks needed less money.

Quoting BlackRocks report, the New York Times said PIMCO analysts gave little chance that troubled loans would recover over time and were very aggressive in marking down the value of real estate collateral.

“BlackRock also criticised Pimco’s lack of transparency,” the paper said.

Demetriades was forced to bring in BlackRock after pressure from bankers and politicians amid reports that the estimates were excessive.

When PIMCO delivered its report on February 1, 2013, Demetriades wrote to Eric Mogelof, the executive who oversaw the project, saying that the estimate “appears to be extracted from a black box (input information and get output without knowing internal process) calculation.”

Mogelof responded that the assumptions came directly from Demetriades’ team as well as the country’s creditors.

The PIMCO report was also used to justify selling the Cypriot banks’ Greek operations to Greece’s “nearly bankrupt Piraeus Bank” at a rock-bottom price. A few months later, Piraeus reported a 3.5 billion profit and “is now Greece’s largest domestic bank and hedge fund darling.”

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