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Cyprus

Edek welcomes court ruling in favour of bondholder

Socialist party Edek on Monday welcomed a recent court ruling in favour of a bondholder whose life savings got wiped out during the 2013 financial meltdown.

In a statement, the party said the judgment “confirms the arbitrariness of bankers and the deception suffered by members of the public, as a result of which they lost millions.”

Edek added that, had a proposal of theirs dating back to 2012 been adopted then, many bondholders would not be in dire financial straits today, saddled with loans they can’t repay.

They were referring to a proposal to insure the first €100,000 in bond holdings, akin to the system applying for deposits. They also proposed at the time that loans should be offset against bond losses.

The events of March 2013 saw the loss of €7.7bn in deposits (amounts over €100,000). In addition, anywhere from €1.2bn to €1.5bn in contingent securities were converted into equity (bank shares) of practically zero worth.

The total amount in compensation claims by bondholders in court cases comes to an estimated €400m.

The government has set up a ‘Solidarity Fund’, financed from state grants and proceeds from the use of state property. But it has also made it clear that the assistance to be given to the victims of the 2013 haircut is not ‘compensation’, as that might suggest the state was legally liable for the bail-in.

The government has acknowledged that the fund would only cover a fraction of the bail-in losses.

Late last week, in the court case alluded to by Edek, a bondholder won his case against Bank of Cyprus. The court ordered the bank to pay the plaintiff €382,000 in damages.

The plaintiff – a car mechanic – argued that the bank misrepresented and did not adequately explain to him the nature of his investment in contingent convertible securities (bonds) or the attendant risks.

According to the court’s findings, in 2009 the manager of the local bank branch had advised the man to invest his money – some €418,000 – into these securities, promising that they’d yield high interest and would be fully insured.

In the banking industry, use of contingent convertibles helps to shore up a bank’s balance sheet by allowing it to convert its debt to stock if specific capital conditions arise.

The bank manager presented the securities as being akin to a deposit certificate. In 2011, the contingent securities were traded for contingent enhanced securities issued by the bank. Later, the enhanced securities were traded with mandatory convertible bonds, which ended up being converted into shares worth 0.01 cents each.

The court said that, even though the plaintiff signed the documents to invest in the securities, this did not absolve the bank of responsibility, despite a non-liability clause the bank inserted in the documents.

It also said the bank manager did not inform the plaintiff of the risks involved. The banker “took advantage” of the client’s trust.

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