Cyprus Mail
Cyprus

BoC depositors see claim for compensation thrown out of court

Bank of Cyprus

A court has thrown out a lawsuit by depositors of Bank of Cyprus seeking compensation for the 2013 bail-in, where almost half of their uninsured savings were converted into shares.

In a judgment dated June 3, it was announced on Tuesday that Limassol district court said its findings re-confirm the need at the time for resolution measures at the island’s two largest banks – meaning the bail-in or ‘haircut’ on deposits.

The depositors were suing the state, the Central Bank of Cyprus and Bank of Cyprus, seeking compensation and claiming they had lost money because of the resolution measures taken in 2013. They also claimed that the transfer of Laiki Bank’s liabilities to Bank of Cyprus placed a considerable burden on the latter’s financials and in this way maximised the amount of the haircut.

Having examined the plaintiffs’ arguments, the court rejected them all, deeming then undocumented and capricious and noting that the plaintiffs had failed to substantiate their claims.

Instead the court sided with the defendants, noting that the assets of Laiki that were transferred to Bank of Cyprus outweighed Laiki’s transferred liabilities, and therefore on balance this placed no additional burden on the savings of Bank of Cyprus depositors affected by the bail-in.

Big savers with Bank of Cyprus had 47.5 per cent of their uninsured money (any amount over €100,000) converted into shares, under the terms of an unprecedented international bailout. As for Laiki Bank, all uninsured deposits there were wiped out, and the lender was wound down and its operations folded into Bank of Cyprus.

Under the programme agreed between Cyprus and its official lenders in March 2013, large depositors paid for the recapitalisation of the Bank of Cyprus, heavily exposed to debt-crippled Greece.

In its ruling, the district court also accepted the defendants’ argument that the Republic of Cyprus was being wrongly sued on the grounds of having exercised inadequate control over the banks – given that the state is not legally responsible for the banks.

Moreover, the court accepted the defendants’ position that the Cypriot state, itself facing default, had considered all options before deciding to strike a deal with international lenders – the so-called ‘memorandum’.

The court noted that, as a result of the bank resolution measures, it was possible to keep providing basic banking services to the public, in this way safeguarding the stability of the financial system as a whole. In addition, “depositors were fully protected, ensuring their direct access to their insured savings, and without transferring the cost of resolution onto taxpayers.”

The resolution measures also preserved thousands of bank jobs. Thus, the court found, the measures were “absolutely necessary and inevitable.”

A key finding of the court relates to the status of a person’s savings. The plaintiffs had argued that the resolution measures had violated their right to property.

Citing case law in Cyprus, the court ruled that “from the moment that moneys are deposited with a bank, they cease being an asset [property] of the depositor, but rather become an asset of the bank.

“As such, they [deposits] are not afforded the protections under article 23 of the constitution.”

Follow the Cyprus Mail on Google News

Related Posts

CySEC toughens oversight on cross-border activities

Andria Kades

Great Sea Interconnector ‘top priority’

Andria Kades

EU to support establishment of asset management office in Cyprus

‘Akamas debacle will cost Cyprus dearly’

Andria Kades

Limassol gallery welcomes a journey of the mind

Eleni Philippou

Helios crash orphans denied state compensation

Andria Kades