Cyprus Mail

Central bank ‘surprise’ at Bank of Cyprus shortfall

Spyros Stavrinakis

By Angelos Anastasiou

The Central Bank of Cyprus was “surprised” to find out that the Bank of Cyprus’ capital shortfall, reported by the lender’s top brass at €200 million in June 2012, was actually double that, former vice-governor Spyros Stavrinakis told the court on Tuesday.

Taking the stand for the prosecution of five former BoC top officials, as well as the bank itself, for market manipulation and misleading investors, Stavrinakis recalled three meetings he and then-governor Panicos Demetriades had with high-ranking bank officials between May and June 2012, and prior to the bank’s annual general meeting (AGM) on June 19.

During these meetings, Stavrinakis said, the general impression the BoC bosses gave them was that the impending sale of General Insurances and Eurolife, expected to be finalised by June 30, 2012, would meet the European Banking Authority’s demand for a capital increase by that time.

At the meetings, the officials spoke of a €200 million shortfall, not €400 million, he said.

“The bank’s officials were cautiously optimistic about finding buyers for the insurance companies,” Stavrinakis recalled.

In a letter to Demetriades, dated June 20, 2012 – i.e. one day after its AGM – the bank “raised its capital needs to approximately €400 million, justifying the increase with various arguments and requesting an extension in meeting them”.

“Both Mr Demetriades and I expressed our surprise at the doubling of the Bank of Cyprus’ capital needs,” the former vice-governor said.

In a letter of response to the BoC, Demetriades expressed his shock in writing, noting that “only if the government were to undertake to inject capital into the bank could the EBA grant an extension to the bank’s required recapitalisation”.

In one of the meetings with the BoC officials, Demetriades had asked “how did you find yourselves in this position”, referring to the bank’s overexposure to Greek sovereign debt, only for then-board chairman Theodoros Aristodemou to reply that they had not realised the risk from buying Greek bonds, nor had they been warned.

However, Demetriades insisted, “there had been red flags on Greek government bonds since 2010”.
“The Financial Times had even run a story about the possible haircut of Greek government bonds,” the governor told them.

According to Stavrinakis, Aristodemou countered that Loukas Papademos – then vice-president of the European Central Bank and future interim Prime Minister of Greece – had told them in a lecture he gave at the Bank of Cyprus on November 3, 2011, that Greek bonds were risk-free.

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