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Executive says mission to save Co-op was impossible (Updated)

By Stelios Orphanides

A Co-op executive told the committee investigating the failure of the Cyprus Cooperative Bank that the lender could have made it if conditions had been less adverse, the Cyprus News Agency (CNA) reported on Thursday.

The Co-op had to struggle with its legacy, the nature of its portfolio and the fact it was government-owned, all combined with the institutional framework which prevented it from producing better results, said Yiannos Stravrinides, head of communications and strategy, told the committee appointed by Attorney-general Costas Clerides, according to the CNA. He also admitted being a friend of the finance minister.

A decrease of the bank’s non-performing loans of around €7bn which could have allowed the bank to stay in business, was the bank’s top priority and had therefore hired “all sorts of advisors,” he said.

“All the Co-op’s ammunition was spent there but it had the worst among bad portfolios, with an average retail loan of €115,000,” he was quoted as saying. “The bank’s division managing arrears had 120,000 accounts to restructure, had all people’s homes as collateral and had some laws that weren’t helpful. Time ran out and things started getting tough in the summer of 2017”.

The strategic aim was organic restructuring as the bank could neither auction nor recover via foreclosures given its business model of ethical banking, Stavrinides said. While the bank could have resorted to foreclosures more often, there was no framework or will to do so as public opinion objected, he said citing reactions to the bank’s agreement with Spain’s Altamira a year ago, which provided the management of the Co-op’s delinquent loans portfolio by a joint venture, as well as reaction from political parties to the bank’s decision to reduce its branch network.

“It’s not easy, it was a very difficult environment and the public support made things worse,” Stavrinides said in reference to the bank’s recapitalisation with €1.7bn by the taxpayer. “That public support had to disappear”.

Stavrinides said that the foremost concern of the bank which saw an outflow of deposits triggered by rumours about its failure that set off late last year, was the protection of its depositors and added that the bank would have performed better if it had completed its merger sooner than early 2017.

“I feel particularly proud that depositors have were transferred to Hellenic Bank in the same capacity,” he said in reference to those of Bank of Cyprus who were bailed in in 2013 and became shareholders.

In the summer of 2017, everything, including the drop in non-performing loans, the completion of the agreement with Spain’s non-performing loans specialist Altamira and finding investors, had to happen quickly, he said and invoked the head of the head of the division of supervision of the Central Bank of Cyprus, Yiangos Demetriou.

Stavrinides dismissed the criticism by Auditor general Odysseas Michaelides on the Co-op executive’s comment right after investors had expressed interest to acquire the Co-op or part of its assets, as the invitation had attracted 16 companies, eight of which were deemed by Citigroup, the Co-op’s advisors as compatible.

As the Co-op had to go in resolution, it was broken down in to two parts, a healthy and a bad bank, with investors focusing their interest on the healthy part of the Co-op, ignoring the other, which ultimately led to Hellenic Bank remaining the main contender to acquire the Co-op’s operations, removing so a large portion of delinquent loans from the banking system, he said.

The Co-op’s advisor proposed a procedure that allowed all possible options, made necessary by the bank’s predicament, Stavrinides said.

“If this procedure failed, the bank would be in trouble,” he said adding that the European Central Bank’s (ECB) Single Supervisory Mechanism (SSM) “was already holding us by the throat. It wasn’t a normal procedure”.

The Co-op which was initially aiming at reducing the government’s shareholding from over 99 per cent to 25 per cent via successive share issues following a listing on the Cyprus Stock Exchange, after it got its first prospectus approved by the Cyprus Securities and Exchange Commission (CySEC) had to withdraw the second prospectus, he said. The decision to do so was taken when the legal basis of the government’s decision to allocate a quarter of the bank’s stock to its customers free of charge was challenged.

The donation of stock would have allowed the Co-op to comply with minimum share dispersion requirements of the Cyprus Stock Exchange’s main market, he said.

Stavrinides said that Finance Minister Harris Georgiades, already facing criticism for backing his childhood friend Nicholas Hadjiyiannis’s questionable corporate governance practices in the bank before and after he became its chief executive officer (CEO), was his best man who also became nine years ago, the godfather of his son.

When he expressed his intention to apply at the Co-op, Georgiades “was very reserved, arguing that the bank was in a transitional stage and I should ponder matters carefully,” Stavrinides continued.

Stavrinides said in response to a question that he became accountant with Hadjiyiannis, the bank’s chief executive whom his predecessor Marios Clerides accused in his testimony earlier this month of undermining him, and later found out that the minister and Hadjiyiannis graduated from the same school in different years.

The banker had to answer to criticism from the two members of the committee about the Co-op’s decision to venture into corporate banking and international banking instead of concentrating on reducing non-performing loans.

Stavrinides responded that the bank’s decision to engage in corporate banking was an idea of former CEO Clerides.

It could help reduce the bank’s non-performing loans ratio by extending new credit, said Stavrinides who is taking advantage of the bank’s early exit scheme. The European supervisor, he added was also pressuring the bank to extend new loans.

 

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