Finance Minister Harris Georgiades was named as the main wrongdoer in the collapse of the Co-op bank, though the president, his cabinet and political parties were also assigned responsibility, in the findings of an inquiry that were published on Wednesday.
Former Co-op executives, including CEO Nicolas Hadjiyiannis, should be investigated further by police, the more than 800-page report recommended.
“The finance minister’s responsibility for the collapse of the Co-op bank is severe,” the report said, likening him to the majority shareholder of a private company, which is dissolved because of mismanagement.
“Because of the bad handling, European supervising authorities lost confidence, and perhaps, we can say, patience also, that Cyprus’ Co-op bank could recover,” the report said.
“The finance minister’s wrong and unfortunate handling prompted a continuous reaction by the supervisors and exacerbated the loss of confidence.”
The government did not immediately comment on the report, as opposition parties called for the finance minister’s resignation.
“The president is absent abroad. We have not studied the findings in-depth to be able to be accurate in what we say so we cannot make any comment,” a government source told the Cyprus News Agency.
The minister did not comment directly on the report, which he said he had not read, but remained steadfast in his view that his and the government’s actions were correct under the circumstances.
“In the case of the Co-op bank we had been called on to manage a chronically toxic situation,” he told reporters. “Some people may have a different view. Some people may have wanted this situation maintained.”
The minister said the administration had taken difficult but necessary decisions and their results were already visible.
“The government’s decisions have secured confidence and stability, have bolstered the Cypriot economy through consecutive upgrades, (and they) have ensured growth prospects,” he said.
The highly anticipated report said the Co-op bank had failed to meet its commitments following its nationalisation and recapitalisation with taxpayer money and that was why it was led to collapse.
It had mainly failed in good governance, which led in turn to failure to reduce non-performing exposures (NPEs) and reduction of operational costs.
While the report conceded that setting the Co-op bank on a sound footing after 2013 was a difficult task, it said that the harder the task the more competent the handling should have been. Management of the bank should have been place in the hands of skilled, experienced and exceptional people, the report said.
“This is exactly where the majority shareholder, the owner of the Co-op bank failed. He did not select the ablest.”
Those people who were able either had to deal with mediocre executives who had the owner’s favour or were dismissed.
“The owner was the state represented by the finance minister who essentially had absolute control of the situation. It is not a coincidence that two of the senior executives were his close friends.”
The report said the selection of Nicolas Hadjiyiannis as CEO was not best for the Co-op.
“But his removal by the finance minister was not an easy decision because of their friendship.”
Georgiades, the report said, had been repeatedly warned by supervisors, in Cyprus and abroad, over the “very poor” corporate governance in the co-op bank.
“But he did nothing.”
The panel concluded that Hadjiyiannis could bear civil and criminal culpability over various actions he undertook while CEO, like the direct appointment of Altamira to manage NPEs.
“We believe that Mr Hadjiyiannis is possibly responsible for the commission of offences that could be uncovered after an in-depth investigation by police,” the report said.
Of special attention, were Hadjiyiannis’ activities in relation with an agreement with Spanish asset management firm Altamira, as well as interest rates overcharges.
“The same in-depth investigation should be conducted into his activity in the advertising sector in co-operation with Yiannis Stavrinides,” the head of the strategy and restructuring.
Stavrinides, the report said, referred to many millions spent in four years on advertising.
“We believe here too there is room for further investigation by police.”
Hadjiyiannis had failed to rise to the occasion and “he completely failed to run the bank with prudence so as to achieve a reduction in NPEs and a reduction in operational costs, two targets that, based on the terms of its restructuring, had to be achieved for the lender to have any prospect of survival.”
The report said Hadjiyiannis displayed neglect and incompetence in tackling the key issues.
He failed to assign NPE management to capable executives and did not replace those who could not achieve satisfactory results.
As regards cutting operational costs, his actions had the opposite result.
The report cited: “Wasted money, excessive advertising expenditure, excessive spending on company cars, high limits on company cards and granting them to ineligible people, tens of millions in purchasing the services of foreign and local experts, recruitment of staff with opaque procedures.”
The committee suggested Hadjiyiannis made decisions unbeknown to the board, which he tried to impose after the fact.
“A characteristic example is the agreement with Altamira, which, we emphasise, was not any kind of deal. It was directly related with the bank’s key objective of reducing NPEs worth €7bn.”
The committee found that Hadjiyiannis had repeatedly violated the terms of his employment – to oversee, supervise, coordinate, and in general, manage the work and activity of personnel to fulfill the bank’s aims.
One of the terms he violated, according to the report, was the obligation to brief the board about important matters.
The report also holds President Nicos Anastasiades responsible for keeping Georgiades in his position.
It suggested that even belatedly, removing the minister could have afforded a different prospect, without vacillations and the obsession of keeping incompetent executives at the Co-op, as well as the inability to understand the dangers in which his policies put the bank in.
The committee said Georgiades did not keep the president or the cabinet informed about the festering problems, which he knew well.
It also blamed political parties for the lender’s demise, saying their responsibilities spanned over three decades.
The report was the result of a seven-month probe into the causes of the bank’s collapse, starting in 1985 when new procedures were put in place.
It is divided in the period before 2013, the year the island’s economy collapsed and the lender was nationalised using some €1.7bn in taxpayer money, and its management during the five years that followed, resulting in it being shuttered in 2018 and sold to Hellenic Bank.