By Angelos Anastasiou
Legacy Laiki administrator Chris Pavlou has warned parliament that transferring control over the entity’s assets from the Resolution Authority to the failed lender’s creditors could have disastrous effects on the ongoing process of liquidating its assets, it emerged on Wednesday.
As the House plenum is poised to approve an amendment allowing Laiki’s depositors to wrest control of its remaining assets, which include 9.6 per cent of share capital in the Bank of Cyprus and ownership stakes in subsidiary banks in six countries, Pavlou argued against the move in a letter to deputies on Tuesday, on grounds that it would shatter the trust shown by the host countries, as well as potential buyers, to the administrators.
“The only reason the six subsidiaries are allowed to operate as going concerns is the tolerance shown by the Central Banks of the countries in which they operate, which has been repeatedly stated to arise exclusively from the fact that administration lies directly with the Resolution Authority,” Pavlou told lawmakers.
“The representatives of creditors and ‘haircut’ depositors, who are asking to change Legacy Laiki’s administrative structure through this legislative amendment, have not sought, nor have they received, any assurance from the oversight authorities in these countries that they could be accepted as owners or administrators of these subsidiaries.”
As a result, Pavlou argued, any change in the administration of Legacy Laiki would inevitably trigger the revocation of the subsidiaries’ licenses, and therefore cause their disorderly bankruptcy.
“The only recourse available will then be the immediate sale or liquidation of the subsidiaries under pressure and panic, with possibly disastrous results,” he warned.
In addition, he said, parties that have expressed interest in acquiring Legacy Laiki’s assets may submit lower offers, or even withdraw from the process altogether, because of the perceived inability to manage the entity after the bank’s creditors take over.
“In any case, such a change would substantially delay the already expedited process of selling the subsidiaries,” the administrator said.
Even worse, he added, depositors and borrowers in the Laiki-owned banks may perceive the change as a signal of impending instability or even bankruptcy, with foreseeable flight of deposits and failure to service loans being the most likely immediate outcome.
Pavlou went as far as proposing that he be replaced, if it means the structure of administration will remain unchanged.
“The possible replacement of the administrator, or the administrative committee, by individuals approved by the representatives of Laiki’s depositors and creditors, could facilitate the uninterrupted operation of the subsidiaries, provided that the basic structure of control and decision-making remains unchanged,” Pavlou advised.
The letter sparked the reaction of Laiki depositors’ association (SYKALA) leader Adonis Papaconstantinou, who deemed it “blackmail to parliament so that it doesn’t do what the association has been discussing with [Pavlou] and others for months”.
He argued that the proposed legislative amendment affords the Central Bank of Cyprus the right of final approval to all the decisions made by the depositors.
“If they have a problem with the administrator, they can replace me,” Pavlou countered.
“But they should be careful, because the Central Banks overseeing Laiki’s assets are very sensitive to such a change; that is, for the association’s members to take over.”