By Stelios Orphanides
The government wants to prevent the bailed out Cooperative Central Bank from becoming yet another costly semi-governmental organisation, Finance Minister Harris Georgiades has said, and is therefore likely to explore ways to hand over the ownership to taxpayers.
“What we want to ensure is that the investment made by the people of this country in the co-op bank is safeguarded,” Georgriades said in an interview.
The government, which injected almost €1.7bn in taxpayer money into the lender following the 2013 bailout, wants to prevent a repetition of the Laiki Bank scenario, which received €1.8bn in May 2012 before going down 10 months later, Georgiades said.
“We feel that it will not be preserved if the Co-op (remains) under the tight and full ownership of the government where it will gradually become another EAC (Electricity Authority of Cyprus), another CyBC (Cyprus Broadcasting Corporation), essentially part of the broader administration,” he continued.
Georgiades said workers at the Cooperative Central Bank — which administers a total of 18 separate lenders — their customers and members, as well as “other segments of society, not excluding those members of society who suffered a loss through the bail-in,” could benefit from such a step, if the government does decide to go ahead.
As part of Cyprus’s bailout agreement, Laiki depositors lost all their deposits in excess of €100,000 while those at Bank of Cyprus, saw almost half of their uninsured deposits turned into equity. Bondholders at both banks saw their investment wiped out. Co-op depositors on the other hand, suffered no losses.
“We have not taken any decisions, we have not even embarked on exploring options, but we shall be exploring all options in their legal, financial, and every (other) dimension, ultimately aiming to see the co-op function not as a as semi -governmental organisation, but as a private entity,” the minister said.
The lender, which is preparing for its Cyprus Stock Exchange listing and is also earmarked for privatisation via successive share which will dilute the government’s stake from 99 per cent to 25 per cent, posted an after-tax profit of €62.1m in the first nine months, compared to a loss of €165.5m in 2015. In September, 59.8 per cent of its loans were not performing.
At an extraordinary meeting in November, the bank’s shareholders decided to meet again in January to take final decisions aiming at speeding up the bank’s stock exchange listing and procedures to improve its financial performance and loan portfolio quality.
A month ago, Alexander Michaelides, a prominent Cypriot academic who teaches finance at the London-based Imperial College, compared the Co-op to a “perpetual black hole” for public finances, as in the absence of a proper corporate culture, it will have difficulties succeeding while the government will have difficulties attracting private investors, effectively suggesting that allowing the bank to fail was an option.
“Our objective is to ensure that there will be no problems,” Georgiades said in response to a question on whether handing over co-op shares to various groups was a way to get rid of a problem. “It’s not like passing the problem (to someone else) but our objective is to act pre-emptively and ensure that this will not become a new problem but a positive addition in the financial sector of Cyprus”.
Georgiades brushed aside moral concerns related to handing over co-op shares.
“In our decision making, the criterion of being popular is not as important as being rational,” he said. “And what would be the most irrational and damaging option for the economy and the taxpayers if this significant investment is lost again. And there are many ways that we have seen state participation in banks across Europe, especially in Greece, being diluted almost in full even as a result of supervisory action”.