Cyprus Mail
Business Cyprus

Silence over Greek debt bank scandal instills despair

Attorney-general Costas Clerides said corruption is rife in the civil service

IN APRIL 2004 an unknown Englishman by the name of Ashley Revell wrote world gambling history. Unbelievable as it may sound, he cashed in all his assets, amounting to $135,000 and went to a casino in Las Vegas with the aim of either doubling his money or losing it all by betting on one of the two colours of the roulette wheel. Revell got lucky and in a few seconds doubled his cash.

Revell’s reckless behaviour, pales in comparison to that of Cypriot bankers who exactly seven years ago (from December 2009 to May 2010), captivated by the way Revell had doubled his money and motivated by the unquenchable thirst for huge profits, decided to invest billions of euros in Greek government bonds which Standard & Poor’s considered junk and which ALL banks and prudent investors were unloading. Every day the foreign press described in the bleakest terms the economic situation in Greece, forecasting that the haircut of the Greek public debt was inevitable.

The only banks in the world that were buying Greek government bonds were the two biggest banks in the Cyprus Republic – Laiki and Bank of Cyprus. The collusion between the two was blatantly obvious. The top executives of the two banks were determined to bet the savings of their customers on the roulette wheel. For them this gamble was considered safe: if Greece got through the crisis they would have made spectacular profits for their respective bank and for themselves in the form of super-bonuses.

If the Greek debt was subjected to a haircut the banks would lose but not the executives. They did not consider, of course, that their criminal irresponsibility would cause an economic tsunami that would destroy even their well-paid positions. These ‘gentlemen’ sacrificed at the altar of personal profit the hard-earned savings of the Cypriot people, but not only escaped unpunished but were given golden hand-shakes and are still roaming freely among us.

No person with basic knowledge of economics can accept their claim that the investment in Greek bonds carried zero risk. To help the reader understand the insanity of buying Greek bonds in 2010, I will cite just two sources. The British paper, The Guardian in its February 2, 2010 edition, carried the banner headline, “Investors rush to sell Greek bonds” while the main headline of the French paper L’Opinion on April 4, 2010 said “L’economie grecque est en train de couler” (the Greek economy is sinking). Similar stories appeared in other authoritative papers such as Die Welt and the Wall Street Journal.

Despite the countless warnings of an impending meltdown the two executives kept at it. Instead of selling, as all prudent investors had been doing, they carried on buying Greek government bonds. Any sense of measure and common sense were in tatters as the two banks invested most of their capital in junk bonds. There is also another query – in order to avoid paying commissions, why had our banks not bought Greek bonds directly from French and German banks instead of going through middle-men? Suspicious transactions cause suspicious thoughts.

Unfortunately, the forecasts of a haircut of Greek debt were proved correct and the victims were Cypriots with deposits at the two banks. The savings of Cypriot depositors were shattered by a few bankers that emulated Revell in the hope of becoming mega-wealthy. The reckless decisions of our bankers cost €4.5 billion, which represented 25 per cent of GDP, and dealt a devastating blow to the Cyprus economy.

The bankers’ action was criminal as it is proven that they had placed their personal interests above those of their banks and their shareholders as well as the national interest; it constituted not only abuse of power but also conspiracy to defraud. In a strictly legal framework, the buying of Greek bonds constituted an abuse of power because the relevant bodies of the banks were never consulted in advance for their approval. These bodies were Committee for the Management of Risks and Purchases and Group ALCO which was responsible for purchases/sales.

This abuse is confirmed by a letter sent by the Bank of Cyprus to the Securities and Exchange Comission (SEC), dated August 6, 2012, in which it was admitted that the purchases of bonds were made on the verbal instructions of A.E. and N.K. In addition to this, the above-mentioned bodies were not informed about the warnings issued by the Central Bank of Cyprus, regarding the risk involved in buying Greek government bonds.

It is a crystal clear case that the attorney-general circumventing. Now the bankers are facing charges of defrauding and manipulating the market but only with regard to “not informing the public that the capital needs of the Bank (of Cyprus) had increased significantly in relation to the amount of €200 million that was announced on 10 May 2012.” There is no mention for the lunacy of 2010. And the general feeling is that nothing will come of this.

The attorney-general’s silence in regard to the biggest scandal in Cyprus’ history instills discouragement and despair. Particularly when we read that in another EU country, Ireland, bank executives went to prison recently for misleading investors, depositors and creditors. Silence – the attempt at hushing up the blatantly obvious – speaks much more eloquently than the loudest words. On the one hand it covers up the hideous crime while on the other it reveals the awkwardness and weaknesses of the silent attorney-general.


George Koumoullis is an economist and social scientist

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