Former Co-op officials continued to testify on Monday to a special committee probing the bank’s collapse which, they said, was the result of bad corporate governance and nepotism.
Former chairman Christakis Taoushanis said that he “strongly” disagreed with the management’s handling of Altamira, Spain’s non-performing loans specialist, as it violated fundamental principles of corporate governance and were facilitated by a permanent “coalition” of board members favouring the management’s decisions.
Taoushanis, who was testifying on the second day of hearings of the special investigation committee tasked with looking into the causes that led to the breakdown of the state-owned Cyprus Cooperative Bank, said that its management omitted to engage in negotiations with any other parties when it sought to create a platform for the management of its non-performing loans.
Shortly before Taoushanis delivered his testimony, Andreas Trokkos another former Co-op official, said that he also felt disappointed over management decisions which affected the bank’s profitability.
Later, board member Demetris Theodotou said that the finance ministry intervened in favour of Nicolas Hadjiyiannis being appointed CEO even though he had not been included in a shortlist with candidates for the job presented to the board.
Former Co-op chairman Taoushanis said that the management of the bank which had handled the negotiations with Altamira had signed a memorandum of understanding (MoU) with the Spanish financial company, which while non-binding, contained a provision for “binding exclusivity” in the negotiations.
Objections he and other board members often raised at board meetings were overruled by the “coalition” of members which comprised the same persons and showed that their support for management was coordinated. “There was solidarity and understanding,” between the pro-management coalition members, he added.
His comments supported the picture presented on Friday by previous board member George Strovolides and the bank’s former chief executive officer (CEO) Marios Clerides who said that his successor, Hadjiyiannis, a childhood friend of Finance Minister Harris Georgiades, had garnered too much power.
The failure of the bank, recapitalised with €1.7bn in taxpayers’ money in 2014 and 2015, to reduce its non-performing loans stock of €7bn fast enough resulted in losses which wiped out is capital. The agreement with Altamira was announced a year ago and was implemented in January, and was too little too late to save the bank, which in March decided to seek a buyer for its operations and assets.
Taoushanis said that both the Central Bank of Cyprus (CBC) and the Single Supervisory Mechanism (SSM), the European Central Bank’s (ECB) branch co-supervising with national banks systemic lenders in Europe, expressed strong disagreement with the government’s initial decision to donate 25 per cent of the Co-op’s stock to its customers. “There was very strong disagreement from the supervisor, both the CBC and the SSM, communicated both verbally and in writing,” he said.
When the member of the committee George Charalambous, a former banker, asked whether the stock had to be conceded free of charge, Taoushanis reacted by raising his hands to demonstrate that he had the same question.
“Having a company with 200,000 shareholders which is in need of funds, there is a chaos at shareholder meetings,” he said.
He also criticised shareholder indifference in filling vacant posts in the board of directors with qualified members and singled out the case of accountant Susanna Poyiadji, who served in the board from July 2016 to April last year without being subsequently replaced by a person with similar qualifications. “Boards must have members with knowledge in areas such as accounting or technology so that one can complement the other,” he said.
Taoushanis who had joined the bank’s board of directors also in July 2016, became its chairman the following month, before resigning in October, said that while he had asked to be shown references to the negotiations with Altamira in the minutes of past board sessions, he was never presented any.
“As far as I know, there weren’t any,” he said. “Then came December 28, 2016, which was a milestone of bad corporate governance. The majority of the board of directors decided after being strongly encouraged by the management in favour of direct negotiations with Altamira.”
The management, he continued, argued in favour of direct negotiations, without seeking an expression of interest from other parties, in an attempt to secure a “first-mover advantage” in announcing the establishment of the non-performing loans management platform.
While he supported the idea of setting up a non-performing loans management platform in general, something which also CBC and SSM were in favour of, he objected to the way the deal with Altamira was completed.
The bank’s slow progress in reducing its bad loans, prompted about a year ago an intervention by the supervisors who asked the bank to take steps to reduce its non-performing loans (NPLs) stock by a quarter.
“It was considered that we hadn’t been aggressive enough with NPLs so we had to go back to the drawing board,” when the CBC and the SSM requested report on the progress on a monthly basis, he said. “We reached the target in the first month but after that I am not aware of what happened as I left the bank.”
When Hellenic Bank which announced its agreement with the Prague-based non-performing loans specialist APS Holdings, it emerged that it had entered talks with 40 companies who offered that service, Taoushanis said, adding that it was unjustified for a state-owned bank to concede the management of 60 per cent of its portfolio without going to tenders.
“My resignation didn’t come out of the blue,” he said. “Some may have been surprised because there aren’t many who give up a job paying 75,000 (euros) a year.”
His resignation was initially communicated to the main shareholder, i.e. the government which owned 99 per cent of the bank’s shares, then to the board of directors and then to the Central Bank of Cyprus, he said.
Andreas Trokkos, the bank’s former head of restructurings, told the committee, appointed by Attorney-general Costas Clerides, that his decision to resign from his position also had to do with a general disappointment over the legal framework on non-performing loans, in addition to what was happening in the bank, which could have improved its profitability.
He said that his division recommended caution in decisions affecting profitability, such as the bank’s decision in 2015 to reduce its lending rates.
The resignation of former chief executive officer (CEO) Clerides made Trokkos even more concerned, he said.
Lastly, Demetris Theodotou, who served as member of the Co-op’s board of directors in 2013 to October 2015, said that Hadjiyiannis who succeeded Clerides was unqualified for the job.
Theodotou said that he left the board after finance minister Georgiades informed him in a letter that he was fired without explaining the reasons, after he expressed his disagreement regarding the organisational structure of the bank, the approval of the business recovery plan and Hadjiyiannis’s appointment.
Following the resignation of Clerides, who on Friday said that he felt undermined by Hadjiyiannis, the company tasked with finding a replacement presented a short list which did not contain Hadjiyiannis’s name, Theodotou said.
In a meeting with Hadjiyiannis, he discussed the possibility of instead opting for a replacement ahead of the then planned capital increase, to assign Hadjiyiannis temporarily an executive role, the former board member said adding that he responded saying that he was uncertain if that was possible.
Andreas Mouskallis, a representative of the old shareholders of the Co-op, whose shareholding following the bank’s bailout shrank to below 1 per cent, intervened with a letter praising Hadjiyiannis’s abilities and recommending him for the CEO role.
Theodotou added that Dionysis Dionysiou, the finance ministry’s liaison with the Co-op, was behind “a lot of pressure” aiming at pushing the procedure in favour of Hadjiyiannis.
Dionysiou argued that if it leaked to the public that there was disagreement regarding over who should be hired as CEO, it could cause concern among depositors, Theodotou said.
He added that while the minutes show that the decision to hire Hadjiyiannis was unanimous, the minutes did not reflect that he and another board member dissented.
The bank, he added, did not collapse from one or two bad appointments of executives but on the absence of corporate governance.