Cyprus Mail
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Our View: Not all investors were ‘tricked’ by the banks

Scenes from one of the numerous bondholders demonstrations outside the Bank of Cyprus (Photo: Christos Theodorides)

ONE OF the most vociferous pressure groups in the last few years has been the Capital Securities Association which is made of the former holders of what were known as convertible enhanced capital securities, issued by the Bank of Cyprus and the now defunct Laiki Bank. We say ‘former’ because these securities were eventually converted into equity which was wiped out by the banking meltdown of 2013.

But the members of the association have never stopped protesting about this injustice and demanding they are compensated by the banks for the losses they suffered. They have staged many demonstrations – some violent – in their effort to pressure Bank of Cyprus into compensating them because they claim they had been duped. While there may be an element of truth in their claim, it was not the case that they had all been tricked by the banks.

They were not obliged to put their money into convertible bonds at gunpoint by bank clerks but freely chose to do so because of the high annual return being offered. And it is very difficult to believe that many of those now protesting were unaware of the fact that a high return was offered by the banks because there was a higher risk. Bank staff may have sold the product aggressively to meet the targets set by management desperate to raise cash and they may have downplayed the risk factor to their customers but the latter also had a responsibility to read the prospectus that explained all risks involved.

The product was also sold to people who did not have a clue about convertible securities and would not have understood the accompanying prospectus. These people have a legitimate claim to compensation, because bank employees had exploited their ignorance and in so doing were in violation of the law. They are now being used by the ‘informed investors’ who have decided that everyone must be compensated.

The Bank of Cyprus, understandably, has rejected the association’s demand for “collective and general compensation” and invited its members to pursue their claims in the courts. It conceded that it would offer relief to certain holders of this product who could not be classed as ‘informed investors’ – presumably because it would lose a court case against them, and not for humanitarian reasons.

This seemed a perfectly reasonable resolution to a long-running dispute, but on Wednesday it was revealed that President Anastasiades had made promises of compensation to the bondholders that he had no right to make as he has no authority over the Bank of Cyprus. How the dispute will now develop is anyone’s guess. We just hope Anastasiades is not entertaining the idea of compensating the bondholders with public funds.

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