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MPs question the silence over Bank of Cyprus’ costly Russian acquisition

Former Bank of cyprus CEO Andreas Eliades

By George Psyllides

None of the people involved in the acquisition of a Russian lender by Bank of Cyprus in 2008 have been questioned by the authorities, MPs heard on Tuesday, despite pledges to investigate the controversial transaction.

Described as a scandal, the acquisition of Uniastrum in 2008 for around €370mln and its sale this year for just €7mln, is being probed by the House ethics committee, which has decided to look into individual aspects that may have contributed to the collapse of the banking sector two years ago. By the time it was sold, Uniastrum had cost BoC some €700mln in losses.

“Examining the Uniastrum case has a specific objective … to give answers to a series of questions such as what reasons led the country’s strongest bank to these damaging decisions, how did the internal and eternal safeguards function, and what role did the lender’s outside consultants play,” committee chairman Nicos Nicolaides said.

Two years ago, a Central Bank (CBC) official described Uniastrum as a bank with a bad record, which apparently did not follow prudent banking practices.

“Its cons were much more than its pros,” the official, Alexandra Theofilou, told an inquiry in 2013.

Before 2007, Uniastrum made cash payments to employees that were not recorded and “did not comply with its tax obligations – an important negative point that was later reversed”.

Of the cost, Theofilou said data submitted by BoC showed it was better compared with other acquisitions in Russia at the time “and the bank’s advisers were of the view that the price was reasonable”.

A findings report on the acquisition compiled by financial forensic experts Alvarez and Marsal (A&M) said that BoC went ahead with the acquisition despite misgivings in due diligence reports and a legal opinion that judged it could opt-out of the deal or renegotiate the acquisition price.

AKEL MP Irini Charalambidou told the committee that former CBC governor Athanasios Orphanides bore a lot of the responsibility since he should not have allowed the sale to go ahead considering the facts he had before him.

She suggested that the bank would not have suffered any losses later if the acquisition had not gone ahead.

Charalambidou also expressed surprise that none of the protagonists have been questioned by the authorities so far. The Securities and Exchange Commission has completed its probe into the affair but did not impose any fines after they were told by the legal service that criminal offences had been identified. That was three months ago.

Theofilou, who prepared a report prior to the acquisition, former head of the CBC supervision department Costas Poullis, and former BoC CEO Andreas Eliades told MPs that they have not been asked to give statements to the authorities.

The Uniastrum deal came in the wake of the demise of Lehman Brothers that triggered the global financial crisis.

It involved increasing the Russian bank’s share capital by €50mln following the buy-out. But media reports suggested the €50mln were in fact kickbacks that ended up in offshore accounts.

Eliades told MPs to look elsewhere for the kickbacks and the blame of the collapse of the banking system.

He claimed that the matter was raised by A&M in a bid to hurt BoC.

DISY MP Andreas Kyprianou said that the biggest issue was why A&M, which acted on the instruction of former CBC governor Panicos Demetrides, had not investigated the main cause of the catastrophe, which was the now defunct Laiki Bank.

“This is a big question and we are expecting investigators to answer it,” Kyprianou said.

Laiki amassed around €9bln in emergency liquidity assistance before it shut down. That debt was transferred onto BoC.

Kyprianou criticised the fact that no investigation had been launched into that, especially after Demetriades admitted to keeping Laiki on a ventilator between June 2012 and the presidential elections of February 2013.

 


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