Cyprus Mail

Demetriades denies hiding lower bailout estimates

Former CBC governor Panicos Demetriades

By Jean Christou
FORMER Central Bank Governor Panicos Demetriades has hit back at a New York Times (NYT) article saying he had withheld from the new government a report by BlackRock, which limited the capital needs of the Cypriot banks to €8 billion instead of the €9 billion estimated by rivals Pimco.
In his response, published by Stockwatch, and on Monday by Politis, Demetriades called last week’s NYT article “unsubstantiated, inaccurate and misleading”.
He said the article implied that BlackRock’s calculations were carried out for the capital needs of banks. “This is inaccurate. BlackRock was appointed to help the Central Bank of Cyprus to assess the objectivity of the calculations of Pimco,” he said.
But the NYT was clear on the difference. It said Demetriades had initially solicited bids from Pimco, BlackRock, Oliver Wyman and Clayton Euro Risk to assess the banks’ recapitalisation needs but even though BlackRock offered to do the job for about €9 million – around half of Pimco’s winning bid, the contract was given to the latter.
Then in December 2012, word leaked that the banks could need as much as €10 billion, after which the Bank of Cyprus, complained to Demetriades over what it saw as inflated Pimco estimates. Demetriades then hired the same BlackRock team that missed out on the initial job to review Pimco’s work for €545,000, the NYT said.
BlackRock had been given a redacted version of the Pimco report to assess before the latter delivered its final document to the CBC on February 1, 2013.
“In early March 2013, Demetriades wrote to newly elected President, Nicos Anastasiades, saying he accepted the fact that the Pimco forecasts were on the extreme side. But, he said, even if Cyprus had picked BlackRock in the first place – and the result was a lower estimate for cash required by the banks – it would have mattered little since the country’s creditors were pushing for the highest possible figure,” the NYT said.
“In the letter, however, Mr Demetriades never mentioned the BlackRock report and the questions it raised about Pimco’s findings,” it added.
In his response to the NYT article, Demetriades said the BlackRock report had not been received by the CBC until after the March 25, 2013 Eurogroup meeting that decided on the haircut and was therefore irrelevant.
Technically this is correct as the report was officially submitted to the CBC in May, 2013, sources told the Cyprus Mail yesterday. But, the sources added, the CBC was also given a preliminary version of the assessment by BlackRock before the end of January 2013, almost two months before the bailout decision.
Former Finance Minister Michalis Sarris told the NYT the new government had known nothing about the BlackRock report, adding that if there was anything that identified flaws in the Pimco report or indicated that Cyprus needed less money, it should have been brought to the table.
But Demetriades responded that the BlackRock work was never intended to replace the findings of Pimco.
Both BlackRock in London, and the CBC declined to comment yesterday.
“Mr Demetriades, in his response to the New York Times also fails to comment on the use of Pimco calculations on the sale of the Cypriot banks in Greece,” the sources told the Cyprus Mail on Monday. “This is a major issue, yet he avoids commenting on it at all.”
Cypriot banks’ Greek operations were sold 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,” the NYT said.

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