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Cyprus

Greek court rules BoC should compensate bondholders

Demonstration by Laiki and BoC bondholders

An Athens court has ruled that the Bank of Cyprus must compensate 24 BoC bondholders because the lender had not given them adequate advice on the possible risks to their investments, it was reported on Monday.

According to the Cyprus News Agency, which has in its possession the ruling – issued last month but could only be released on Monday – the court found that the BoC, through its branches in Greece, “acted in violation of its obligations” on the sale of its products to clients with whom it had developed a relationship of trust which resulted in them losing their money.

Thousands of investors in Cyprus lost around €700m when bonds in the Bank of Cyprus and Cyprus Popular Bank, or Laiki, were wiped out in March 2013.

The court ruling provides for advance partial compensation of the 24 claimants, around €460,000, awarded to each of them depending on the hit they took by investing in bonds, especially with the change of their investments in Convertible Enhanced Capital Securities (CECS).

The decision is “provisionally enforceable”, the CNA said, but said it was likely the BoC would appeal the decision.

The BoC encouraged its clients to invest in CECS by knowingly presenting false facts as true, the ruling said, and withheld from them the risks such investments entail. The bank “sought to balance its faltering capital adequacy through raising funds from the sale of these securities”, the ruling said.

The ruling also mentioned the “fraudulent conduct” of the bank’s employees who convinced the claimants to invest in the product in question.

The court also imposed on the lender part of the applicants’ legal costs.

Greek law experts, told the CNA, that although the court decision may be useful as a guide to lawyers of both sides in Cyprus when the time comes for the adjudication of the class action of bond holders here, the two countries have different judicial systems.

BoC, which absorbed Laiki’s operations in March 2013, has repeatedly rejected compensating bondholders without however, ruling out exceptions related to “humanitarian cases”. The bank told bondholders to pursue legal recourse.

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