Cyprus Mail
Cyprus

Fight over assets of Legacy Laiki

Legacy Laiki administrator Chris Pavlou

By Angelos Anastasiou

DIKO leader Nicolas Papadopoulos’ two-day vicious tirade against Legacy Laiki’s administrator Chris Pavlou earlier this week struck most as peculiar, to say the least. Fewer than six months on the job, it seemed unlikely that Pavlou – a seasoned and well-respected banker – could have got things so wrong as to merit such a no-holds-barred bashing. And considering that the entirety of the barbs thrown at him by Papadopoulos spanned the gamut from ancient to merely old news, it was not long before a bigger picture started to emerge.

The strange incident was, in fact, a well-timed attempt at getting rid of the administrator. Pavlou’s six-month appointment expires on Tuesday, and the Central Bank has the option of renewing it – an eventuality Papadopoulos wanted to eradicate. The head of the House finance committee doesn’t want Pavlou at the helm of what’s left of the deceased lender, and a Central Bank long sick of bearing the brunt of endless Laiki-related accusations of mismanagement seemed like the perfect candidate – yet again – for accusations of mismanagement. And two days before Pavlou’s appointment expires, he has no idea whether it might be renewed or not.

Legacy Laiki’s administrator is mandated with maximising the value of the bankrupt lender’s remaining assets, so that its creditors can recoup as large a chunk of their losses as possible. In this case, the bulk of the creditors are the depositors whose money – over €100,000 – vanished after the island’s largest lender, the Bank of Cyprus, was given a lifeline that required absorbing part of the failed bank.

And the part that wasn’t absorbed – Legacy Laiki – consists of those assets left behind for value-maximisation. Per the rules, these were placed under the care of a special administrator, initially Andri Antoniades and replaced in April by Chris Pavlou. Meanwhile, some of the Laiki depositors banded together and created SYKALA – the ‘Laiki Bank Depositors Association’ – to form a unified front and take the legal route.

It is a little-known factoid that SYKALA is an utterly unknown quantity, even to its own leadership. According to its head, Adonis Papaconstantinou, the association does not ask to know the extent of its members’ losses during the infamous March 2013 ‘haircut’ – in fact, membership in SYKALA doesn’t even require actual losses, rendering the acronym a misnomer.

“We feel this is private information, and we consciously chose to not require its disclosure,” he told the Sunday Mail.

“We actually have two kinds of members: we have depositors who have suffered haircuts, and sympathisers who support our cause but have no personal stake in it.”

But the fact that no one knows who SYKALA represents, how many of them had their deposits seized, or what percentage of the seized money belonged to its members, appears to have deterred no one from lending a sympathetic ear to the association.

“Since our formation, we have met with all local political parties, the governor of the Cyprus Central Bank (previous and current), the minister of finance, the president of the republic, even some ‘non-top’ Troika representatives who visited Cyprus,” SYKALA said, by way of complaining for not getting anywhere, in a letter to European Commission President Jean-Claude Juncker last month.

And Papadopoulos’ House finance committee has invited SYKALA – presumably in its self-proclaimed capacity as representative of Laiki depositors – to a number of its sessions, unquestioningly accepting its views as the single voice of “haircut Laiki depositors”.

DIKO leader and head of the House finance committee Nicolas Papadopoulos
DIKO leader and head of the House finance committee Nicolas Papadopoulos

So much so that last June, Papadopoulos, DISY leader Averof Neophytou, the Greens’ leader Yiorgos Perdikis, and EDEK’s Nicos Nicolaides co-sponsored a bill proposing that control of Laiki’s remaining assets be passed from the Central Bank, in its role as Resolution Authority, to “Laiki’s creditors”. This has been a constant demand of Investment Bank of Greece’s since the association’s inception.

If passed, the bill will allow the people who lost their money when Laiki went down – thus far collectively treated as a single unit represented in its entirety by SYKALA – to call a general assembly and appoint their own administrator.

The reason this bill could be crucially important is the very bone of contention in Papadopoulos’ public row with the administrator – the Investment Bank of Greece (IBG), a Legacy Laiki subsidiary, incidentally also headed by Pavlou.

According to a Sunday Mail source, who spoke on condition of anonymity, this obscure entity is essentially a goldmine waiting to be tapped.

IBG is a relatively small bank, formerly owned by Laiki Bank and licensed to operate in Greece.

Its entire loan portfolio was transferred to the Greek Piraeus Bank in the chaotic shuffle of March 2013, when the Greek arm of local banks were sold off to Piraeus in order to mitigate the risk of contagion to Greece.

Since then, IBG has operated mainly as a deposit-holding retail bank focusing on “commission income in order to avoid any credit risk and maintain its high capital adequacy and liquidity ratios”, with minimal risk exposure to speak of. A bank with a capital buffer of over 40 per cent and an equally high liquidity ratio is, indeed, a very attractive proposition, especially in today’s environment.

An apparently rudimentary plan circulating among Laiki depositors has this company slated as the vehicle through which Laiki can be resurrected, with the “haircut depositors” as its new owners.
“Here it is: there are basically six things left of what used to be Laiki that still have any value,” the unnamed source told the Sunday Mail.

“A 9 per cent stake in the Bank of Cyprus; Rosprom Bank in Russia; stakes in companies in Romania, Malta, Serbia; and, of course, IBG. Not counting the stake in BoC, these could easily be worth €200 million in all.”

This seems to be the plan: a new bank, unburdened by loans – non-performing or otherwise – with a lending margin that could make a huge splash in the Cyprus economy, to fill the gap left by Laiki’s demise.

A recent bid by Piraeus for the rest of IBG was summarily dismissed by Pavlou as laughably low. The administrator has no objection to Laiki’s creditors taking over IBG – “it’s their bank”, he says. But, time and again, he has warned against taking things too fast.

“Taking over a bank, transferring ownership from one shareholder to another, is no simple matter,” he told the Sunday Mail.

“I am all for the creditors taking control not only of IBG but all Laiki Legacy’s assets. But in order to approve a change in the ownership of a bank, the Central Banks of the countries involved – not to mention the European oversight authorities – need to be convinced that the new shareholders are ‘fit and proper’. These things are not as simple as some people may think they are.”

On the other hand, Pavlou has been appointed to maximise the value of Laiki Legacy’s assets. If an offer comes in for IBG that is too good to turn down, his job is to consider the interests of all creditors, not just haircut depositors. His mandate would oblige him to weigh the pros and cons before making a decision. And that is precisely why he must go.

“We are against [IBG’s] liquidation – it is a healthy bank that we don’t want to see sold off,” said SYKALA’s Papaconstantinou.

“It is the only subsidiary of former Laiki that maintains assets – there is still something there for which there could be interest, and so all of Legacy Laiki’s assets should be transferred to IBG, so that its former depositors can control them,” Papadopoulos echoed on live radio last Tuesday, defending his legislative proposal to transfer administration of Legacy Laiki from the CBC to depositors.

One of the more interesting questions arising from this prospect is who would actually control this new bank in such a scenario. According to Papadopoulos’ proposed bill, Laiki’s creditors – among them, the depositors who lost their money – will be tasked with electing the administrator of their choice at a general assembly to be called three months after the bill becomes law.

Except Laiki’s creditors have thus far been dealt with as a homogeneous group, represented solely by the leadership of SYKALA. Could the association somehow find itself running a bank that technically belongs to a majority of individuals and companies that neither support nor acknowledge it as representing them?

“SYKALA says it represents Laiki’s haircut depositors, but no one has ever bothered to check who it actually represents, how many people and how much money,” the unnamed source told the Sunday Mail.

“To give you an example, a 20 per cent minority stake runs the whole show at the Bank of Cyprus.”

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