CYPRUS’ banking institutions over-extended themselves, leaving the country exposed and now it is time to pull back, finance minister Michalis Sarris said yesterday, referring to a series of painful measures that will see major depositors in the Bank of Cyprus (BoC) lose some 60 per cent of their deposits over €100,000.
“Definitely our policy must be that what we did was excessive expansion, which exposed us, and now is time to pull back,” Sarris told reporters yesterday.
He was discussing a series of measures that are part of a 11th hour bailout to save the banks and the economy from defaulting, later confirmed by the Central Bank of Cyprus. The haircut will be offset against any existing loans, which Sarris said might mean that some people would be “neither debtors nor creditors”.
But he conceded that savers had taken a hit.
“We have had a major hit. Doubtless there was a non-voluntary conversion of deposits to shares but we now have a reformed banking institution that is ready to play its part in the Cyprus economy,” Sarris said.
The Central Bank of Cyprus published yesterday two government decrees on Laiki Bank and the BoC that came into effect from 6pm on Friday.
On Tuesday, when banks re-open, the Laiki branches will belong to BoC but will be open to the public as normal. All Laiki bank debts and other financial obligations with the exception of deposits larger than €100,000 will be transferred to the Bank of Cyprus.
A total of 37.5 per cent of deposits larger than €100,000 in the Bank of Cyprus will be converted to shares, and an additional 22.5 per cent will be frozen for up to 90 days but may be converted to shares in order to recapitalise the bank. The owners of those shares will have voting rights in the BoC’s general meetings and will have dividend rights, allowing them a share of any BoC profits made in the future up until the point they regain the amount that got converted into shares plus interest. If any part of the withheld 22.5 per cent is returned to depositors, they will then be given interest on their savings in arrears plus a small surcharge, the Central Bank said. The remaining 40 per cent is also temporarily frozen but will continue to attract interest as normal.
The measures are per individual customer, so if two people have a joint account of €200,000, then each person will be thought to have €100,000 and will not incur a haircut. The deposits that are subject to a haircut may be in separate accounts. So if a person has €150,000 in three separate BoC accounts, €50,000 will be subject to a haircut.
The BoC’s existing capital, including existing bonds and shares will also be converted in shares but will not carry dividend or voting rights for their owners.
Deposits under €100,000 in Laiki will be transferred to the BoC. All deposits belonging to credit institutions, insurance companies, the government and other public bodies such as local authorities and municipal councils will also be carried over to the BoC. The same applies for charity foundations, schools and educational bodies and deposits belonging to the country’s main bank card transaction agency, JCC Payment Systems Ltd. Depositors who move from Laiki to the BoC are not part of the haircut.
The deposits that will not be transferred to the BoC will be part of a bad bank that will undergo resolution, i.e. an orderly wind down. Although the money will be there nominally, depositors will not have access to their money for an indefinite amount of time. As the bad bank slowly starts tidying up its account books cash would start going into the accounts, but the depositors could lose a substantial part of their savings if the bad bank fails to fully recoup all of its bad assets, as expected by analysts.
Sarris said yesterday that Laiki bank branches abroad would be gradually sold but this might take some time given that “when everyone thinks you should sell you cannot sell on the best terms”. Sarris said that the Laiki Bank UK may be protected in part by measures taken by the Bank of England and is not part of the Cyprus developments on Laiki.
“There will have to be an adjustment,” Sarris said adding that the Cyprus-based auditors and lawyers that were part of the country’s financial services have been dealt a heavy blow. With time Cyprus can expand into new markets such as China and the Arabic-speaking countries, he said. Voluntary departures and smart use of pension funds might ease the blow and limit forcible laying offs, he said.
Cyprus has the infrastructure, the people and the legal system to become a different kind of financial centre that is more contained without a large physical presence abroad and without huge investments in Greek bonds, he said referring to the years of overexpansion that contributed to the current crisis when banks incurred losses by a Greek debt write down in late 2011.
Russian oligarchs are in London and elsewhere, Sarris said referring to unsubstantiated claims by Cyprus’ European partners and foreign media that Russian oligarchs laundered their money in Cyprus. “In Cyprus we have the average Russian that wants a secure system, a good lawyer and a good legal system,” Sarris said.
Meanwhile, DIKO’s Nicolas Papadopoulos, who also heads parliament’s finance committee, criticised the Central Bank of Cyprus for failing to brief the public in a timely manner. “For a week now we’ve been waiting on the Central Bank to explain what will happen to their deposits and debt in the BoC and Laiki Bank, as well as their shares,” Papadopoulos said.
“People are behaving responsibly but the officials are being irresponsible,” he said.

A depositor takes money from a Bank of Cyprus ATM

THE former CEO of the Bank of Cyprus yesterday accused the previous administration and the Central Bank governor of destroying the island’s biggest lender in a bid to cover themselves for the island’s economic woes.
Breaking his silence after nine months, Andreas Eliades, who resigned in July last year, claimed that certain circles, inside and outside BoC, not only failed to join forces but they undermined every effort to tackle the crisis.
“Unfortunately, developments confirmed that it was all part of a well-devised plan to break up the entire banking sector and especially the Bank of Cyprus, which was in good financial condition at the time,” Eliades said in an article published by financial portal Stockwatch.
Based on a European stress test, BoC needed €1.56 billion in recapitalisation funds by the end of June last year.
Eliades said BoC managed to raise the bulk of the cash apart from around €300 million “which we aimed to cover through other actions.”
In three meetings with CB Governor Panicos Demetriades in May and June, the bank, among other things, asked for a three to six-month extension to find the funds.
“He gave us to understand that he would try and that a conditional extension might be given,” Eliades said.
BoC also wanted to know if the final write-down on Greek debt would be 71 per cent as per stress test, or whether it would be higher.
The governor, according to Eliades, said that he would look into it and get back to them.
“We should note that if the response was positive, the needs stemming from the stress test would be reduced by around €80 million,” Eliades said.
At the same time, BoC was trying to sell its two insurance branches, a deal that would have fetched some €270 million thus covering the lender’s shortfall.
“Instead of supporting the efforts and providing prompt responses from the European Banking Authority, the governor also torpedoed the efforts to sell the insurance companies through continuous correspondence that created complications in the procedure,” Eliades said.
The former CEO said that BoC at the time – June 30, 2012 – did not have any major problems: it had not borrowed any emergency liquidity from the European Central Bank; its deposits fully covered the loans; capital ratios were satisfactory; it had several billion in available cash and it was very close to completing its recapitalisation.
“However, it seems that certain circles did not care about this at all,” Eliades said. “What they cared about was how to hurt the BoC’s credibility and how to deconstruct it, supposedly proving that the large banking sector, the bankers and everyone else was to blame, not their actions and their inaction.”
Eliades also rejected reports he was to receive a €2.0 million bonus.
The former CEO said he had relinquished all his legal rights after his resignation apart from his provident fund, which he had been paying into for the past 33 years.
Eliades wondered why there was so much fuss about his provident fund while nothing had been said about how much former finance ministers Charilaos Stavrakis and Vassos Shiarly collected after they left BoC.

A FINANCE ministry decree, the third since controls were first introduced, yesterday raised the ceiling on transactions which do not require Central Bank approval to €25,000 from €5,000.
It also permits the use of cheques worth up to €9,000 per month.
Other restrictions introduced last week, including a €300 per day cash withdrawal limit and a €1,000 euro limit on the amount travellers can take overseas, remain in place.
Employer organisation OEV said the measure was in the right direction but was not enough for businesses to cover their obligations.
OEV urged the Central Bank to immediately review its decision and free the whole amount – 40 per cent – of uninsured deposits in the Bank of Cyprus.
“What is important is for the market to start moving immediately by increasing cash flow,” OEV said.
Yesterday’s decree - signed by former finance minister Michalis Sarris and dated April 2 – would be valid for two days.
Officials have said it could take up to a month for restrictions to be fully removed.
Before resigning yesterday, Sarris said it was not clear when the remaining capital controls would be lifted.
Cyprus introduced curbs on money movements when banks reopened on March 28 after a two-week shutdown while the government negotiated a €10 billion bailout from the International Monetary Fund and the European Union.
Its capital controls are a first for the eurozone, introduced in an effort to prevent a cash drain.

A COMPANY linked with President Nicos Anastasiades, which the opposition claims transferred millions out of Cyprus after a tip off, said yesterday it would bring back the money under certain conditions.
Both Anastasiades and the company have rejected the allegations, published by Haravghi, the mouthpiece of former ruling party AKEL.
The company, belonging to Anastasiades’ daughter’s parents-in-law, A. Loutsios and Sons Ltd, had never denied transferring €10.5 million to Barclays PLC in London, from its bank accounts in Laiki just days before the Eurogroup decided to raid people’s deposits on March 16.
It said however that the money was needed to pay for the acquisition of two properties in Greece - €1.1 million plus €400,000 for renovations - and to cover a €6.5 million bid made by the family for property belonging to the Greek government in Cyprus.
In a new announcement yesterday, the company said it had decided to repatriate the money if its bid failed.
On top of that, the company said it would impose a voluntary write-down and donate the amount to the Church of Cyprus to be used to help the needy.
The company reiterated that the write-downs imposed by the Eurogroup had cost it over €15 million “a fact that shows there was no intention of avoiding the write-down or resolution (of Laiki).”
“Our company has operated in Cyprus for more than four decades in full transparency, honesty and credibility,” the statement said. “We did not opt to hide behind companies but we carried out our bank transactions, as we always do, eponymously and with full transparency.”
The company repeated that any insinuations that it had received preferential information were “malicious and defamatory”.

THE three-man Committee of Inquiry into whether there were civil, political or criminal responsibilities attached to the near- bankruptcy of the economy, were sworn in yesterday by President Nicos Anastasiades.
The committee comprises Giorgos Pikis, a former Supreme Court judge and former member of the International Court of Justice in The Hague, and former Supreme Court judges Panayiotis Kallis and Yiannakis Constantinides.
The Cabinet appointed the committee on March 28, just days after a harsh bailout deal was reached with Cyprus’ international lenders, the European Commission, the International Monetary Fund (IMF) and the European Central Bank (ECB).
Referring to the aftermath of the deal reached on March 25, Anastasiades said yesterday the committee would look into the reasons that “led the country to the brink of bankruptcy, the resolution of one of the country’s biggest banks (Laiki), and the loss of billions in a write-down of deposits in the other one (Bank of Cyprus)”.
“Innocent fellow citizens who are called to suffer the consequences are justly calling for the punishment of anyone responsible,” Anastasiades said.
“The government and myself would be – in our opinion – equally responsible if we did not respond to the call of our fellow citizens...” he added.
But in the light of reports that he allegedly tipped off family members ahead of an EU decision to dip into bank deposits to transfer their money out of Cyprus, Anastasiades asked the committee to start the investigation with him.
“I ask of you to prioritise investigating with extra scrutiny all that is directly or indirectly attributed to me,” Anastasiades said.
“Do not limit yourselves to my close relatives, but extend your investigations to the law firm to which I was a partner until recently,” he added referring to Nicos Chr. Anastasiades & Partners that he founded.
The inquiry’s mandate includes the investigation of the “events and decisions relating to the provision or write off or reduction of loans or the removal of guarantees or banks affording other concessions, in Cyprus and abroad.”
This will necessitate looking into lists that have surfaced naming former and current MPs, prominent individuals and companies who have allegedly had loans written off or moved money out shortly before the troika imposed a deposits haircut.
Anastasiades also asked the committee to keep the attorney-general, Petros Clerides, informed of any criminal offences so that his office could expedite the indictment of any individuals as necessary.
On his part, Clerides said that he received a report by professional services firm Alvarez & Marshal which was investigating why the the Bank of Cyprus and Laiki sought state support in June last year, unable to meet their regulatory capital requirements. Clerides said the report would be examined by experts “who understand the banking system” and would be also handed down to the committee of inquiry.
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How it came to this
THE appointment of the Committee of Inquiry followed a time of unprecedented anxiety over the banking system whose future looked bleak after parliament rejected an initial bailout deal sanctioned by the eurozone’s finance ministers and the troika on March 15-16 to impose a levy across all local banks, including on small depositors holding less than €100,000. After parliament rejected the deal, the ECB said it would pull emergency funding to Cypriot banks if the country failed to agree on a bailout by Monday, March 25 and the nation held its breath as it came close to banking collapse and a eurozone exit.
But the deal struck in the early hours of March 25, has left many angry after the troika agreed to lend €10 billion to Cyprus in return for closing down the second-largest bank, Laiki, and imposing what could amount to a 60 per cent haircut to BoC depositors. Although deposits smaller than €100,000 have been secured, anyone holding more than that in Laiki will have to wait for years as the bank undergoes an orderly wind-down and tries to recoup its bad assets.
Most analysts expect Laiki depositors to lose a big chunk of their money. Meanwhile, BoC depositors have had 37.5 per cent of their deposits larger than €100,000 converted to shares, a further 22.5 per cent frozen.
The economy itself started declining in 2008, coinciding with the Demetris Christofias administration, which inherited a modest surplus of €554 million, 3.5 per cent of the country’s GDP at the time. As spending on salaries and pensions continued rising so did the state deficit continue growing until it reached 6.3 per cent in 2011 – partly affected after the island’s biggest power station was knocked out after a munitions blast in the summer of 2011. 
The government then decided to take some austerity measures but Cyprus, continually downgraded by ratings agencies citing the banking sector’s exposure to Greek debt and fiscal slippage, was shut out of international markets. Managing to get a €2.5 billion from Russia last year, the government could carry on operations and despite officially asking for a bailout in June that year, was able to delay signing an agreement until the next government, of Nicos Anastasiades, took over in February.

The committee of inquiry

FINANCE MINISTER Michalis Sarris resigned yesterday after concluding a €10 billion bailout deal with international lenders in which the country almost overnight downsized its dominant banking sector and hit depositors with losses for the first time in the eurozone.
Sarris, who was dispatched to Moscow last month seeking Russian aid as an alternative to across the board bank levies in Cyprus but returned empty-handed, said his main goal of agreeing a deal with lenders had been accomplished.
But he said it was also appropriate to resign since his previous role as chairman of the Popular Bank, or Laiki, - the island's second largest lender wound down under terms of the bailout - was also likely to come under scrutiny.
"I believe that in order to facilitate the work of (investigators) the right thing would be to place my resignation at the disposal of the president of the republic, which I did," said Sarris, who headed Popular for a few months in 2012.
President Nicos Anastasiades yesterday appointed a three-member committee of inquiry to investigate the causes of the crisis.
Sarris will be replaced by Harris Georgiades, who has held the labour ministry post in Anastasiades's four-week administration.
The Commerce Ministry’s permanent secretary, Zeta Emilianidou, will, in turn, replace Georgiades. Both will be appointed at a ceremony at the presidential palace this morning. 
In a written statement, Anastasiades thanked Sarris for his “valuable services during the course of the difficult negotiations with the troika”.
He also praised the former World Bank economist for demonstrating a “high political ethos and political sensitivity” regarding the reasons given for his resignation.
 
 

ONLY President Nicos Anastasiades and parliamentary speaker Yiannakis Omirou of all government officials will now be entitled to fly business class, as part of the austerity Cyprus agreed to with international lenders in exchange for a bailout.
The ban on business class travel for government employees will not apply to transatlantic flights, said a memorandum of understanding between Cyprus and the eurozone.
Apart from the restrictions on more comfortable travel, senior government officials will also lose the right to buy duty-free cars and all state officials and parliamentarians will have wages frozen until 2016, the document said.

CONTRARY to the government spokesman’s statement that Cyprus would see a primary surplus in 2018, quoting the memorandum, Reuters reported last night that the island should reach a primary surplus of 4.0 per cent of GDP in its budget from 2017 onwards to ensure public debt falls.
It also said Cyprus would have a budget deficit before debt servicing costs of €395 million, or 2.4 per cent of GDP this year, a bigger gap than the 1.9 per cent of GDP in 2012.
Next year the primary deficit would grow to €678 million, or 4.25 per cent of GDP and then shrink to €344 million, or 2.1 per cent of GDP in 2015.
In 2016, the island is to reach a primary surplus of €204 million, or 1.2 per cent of GDP and 4.0 per cent from 2017 onwards.
The deficit targets in nominal terms and as a percentage of GDP in the MoU imply that international lenders expect the Cypriot economy to contract almost 8.0 per cent this year against 2012, shrink again by around 3.0 per cent in 2014 and return to around 1.0 per cent growth in 2015 and 2016.
The MoU said Cyprus would raise at least €1.4 billion from selling state-owned assets, including stakes in the country's telecoms, electricity and port companies.
It said the island had excellent prospects for increasing its revenues from tourism and that the government would conduct a study of how to make that sector more competitive.
All the measures are to help bring down Cypriot debt to around 100 per cent of GDP in 2020.

DID HE jump or was he pushed? This is the question many will be asking after yesterday’s announcement that finance minister Michalis Sarris had tendered his resignation after only a month in the job. It was certainly no ordinary month, but a month of crises, ultimatums and desperate negotiations that led to the adoption of very painful decisions from which the economy would take many years to recover.
Sarris’ explanation for his resignation was that he wanted to facilitate the work of the committee of inquiry that was sworn in yesterday. “The period the committee would investigate includes the period I served as chairman of Laiki Bank and in order to facilitate the work of the committee, I believe the right thing was to put my resignation at the disposal of the president,” he said yesterday. His offer to help the committee’s work by resigning was applauded by President Anastasiades, who praised Sarris’ “high political ethics and political sensitivity.”
The president did not appear to have tried very hard to dissuade him. This suggested one of two things: either he was unhappy with Sarris’ handling of the bailout negotiations with the Eurogroup and his unsuccessful trip to Moscow or he felt that the finance minister’s departure would ease the pressure on the government. There had been a lot of criticism of Sarris after the first Eurogroup meeting on the grounds that he had gone to Brussels unprepared without a plan B. Could there have been a plan B given the ultimatum Cyprus was faced with?
Anastasiades may have been relieved to see Sarris go – there had been strong objections to his appointment within DISY – but this does not reflect well on his judgment. Why had he chosen as minister a man who had served as chairman of Laiki Bank, given that he was determined to order an in-depth investigation of the causes of the economy’s collapse? Perhaps this was not the real issue. The president might have found that Sarris did not have the tenacity or drive to manage an economy in deep recession.
Admittedly all this is speculation. It is quite possible that Sarris, who turns 67 this month, decided that he did not want to do a job synonymous with daily crisis management that would put him under tremendous pressure and cause him continuous stress. The post of finance minister in Cyprus of 2013, we suspect, is for a younger person with political ambition, drive and a desire to prove himself. Haris Georgiades, who was moved to finance from the labour ministry, fits the bill but it remains to be seen whether Anastasiades has made the right choice this time.

THE GOVERNMENT yesterday clinched a deal with the troika on a €10 billion bailout programme with ‘better’ terms than the previous draft memorandum, said government spokesman Christos Stylianides. 
“This is a very important development which ends a very long period of uncertainty,” he said, adding that the conditions have now been put in place to inject life back into the economy.
The deal, which requires ratification from eurozone finance ministers and national EU parliaments, will see Cyprus receiving a €10 billion loan, carrying an interest rate of between 2.5 and 2.7 per cent. It is repayable over a 12 year period after a grace period of a decade.
The spokesman noted that the interest rate was much more competitive than the 4.5 per cent secured by former president Demetris Christofias for a €2.5 billion loan from Russia.
 “Unquestionably, the deal with the troika should have been completed earlier under much more favourable political and economic conditions,” said Stylianides.
Despite the delay, “the situation is now normalising, stabilising, creating the conditions to restart the economy,” he added.
Listing the improvements achieved by the government in the new bailout deal, Stylianides said the government was able to protect Cyprus’ sovereign rights over the planning, exploitation and management of revenue from its natural gas, ensuring that the above remain in the hands of the state.
Explicit references are included on the Cyprus Republic’s exclusive responsibility over its hydrocarbons, he said, adding that a provision for the troika to re-examine the programme was removed from the memorandum.
Compared with the draft deal brokered in November by the previous government, yesterday’s agreement gave authorities additional room to reach a primary surplus by 2018, extending the period of fiscal adjustment by two years from the initial 2016.
Stylianides argued that this allowed a “milder” form of fiscal adjustment, spreading out consolidation over five years and reducing pressure on the state.
The provision for privatisations offers adequate timeframes, which also extend to 2018 from 2016.
“This buffer allows for better planning and implementation under better economic conditions, which will also safeguard the workers,” he said. 
The government negotiated to save the jobs of hourly paid workers and contract teachers who were due to enter into unemployment under the old draft, by imposing a “a very small and scaled contribution” from public sector workers ranging from 0.8 per cent for low-paid workers up to 2 per cent for highly paid civil servants.
The proposal to increase teaching hours by one period, which would have led 500 teachers to unemployment, was also scrapped.
Under the previous draft memorandum, around 170,000 citizens would have lost access to free healthcare. Now, free healthcare for these people has been safeguarded by imposing a temporary contribution or health insurance fee of 1.5 per cent on monthly salaries of public workers for a transitional period until the National Health Insurance Scheme begins operation.
The spokesman said the same small contribution in exchange for free healthcare will be made available on a voluntary basis to large families with three or more children. 
Until now, regardless of income levels, all public servants and their families received free healthcare.
Regarding provident funds deposited in Laiki Bank, Stylianides said adequate resources are secured in the bailout programme so those funds are not lost but are treated in the same way as those of the Bank of Cyprus. 
The government is also putting together a comprehensive plan aiming to protect to the greatest possible degree workers’ pension rights, he said.
The obligation to downsize the public service by 5,000 workers was renegotiated down to 4,500, allowing the government to make a “smoother” adjustment through retirements. 
Stylianides said the deal also allows for banks and customers to come to an arrangement within 60 days on readjusting the conditions of loan repayments, with the aim of lightening the burden on those citizens seriously affected by the crisis. A banking mediator will also be introduced for these purposes.
Meanwhile, the time needed to go through the procedure of a compulsory sale of a first residence following a default on loan repayments has been extended from two years to two-and-a-half, while the need to pass the relevant legislative adjustments has been pushed back to the end of 2014.
In addition, a troika demand for taxing dividends has been avoided, he said.
The spokesman also noted that the provisions relating to the Cooperative Movement have also been “greatly improved”.
“Any conditions which could lead to a drastic and sudden resolution have been removed and instead we have ensured that the process of restructuring the Cooperative Institutions will be smooth,” said Stylianides.
Finance Minister Michalis Sarris, who handed in his resignation yesterday, told reporters that he expected the first disbursement of aid in early May.
“The year 2013 will be a very difficult one, while the beginning of 2014 will be difficult. Beyond that period, however, I believe that there will be positive prospects,” said Sarris.
He argued that the new deal providing a more gradual period of adjustment allows Cyprus to be “optimistic for better days to come with no additional sacrifices”. 

There will be better times ahead, said outgoing finance minister Michalis Sarris

BANK workers union ETYK has urged its members to participate in a two-hour warning strike tomorrow to demand protection of provident funds and their jobs.

The work stoppage will start at 12.30pm.

The union said it was concerned because despite the government’s promises “issues that regard our future and the future of our children are still pending.”

The risk to the provident funds belonging to the workers of Laiki and Bank of Cyprus and other people was still present, despite their efforts, ETYK said.

“We also see that no agreement has been made nor any actions are underway, like a decision on voluntary exit, which would prevent the need for personnel dismissals,” ETYK said.

Banks said service hours tomorrow will be between 8.30am and 11.45am.

THE HEALTH minister yesterday sought to explain how the new memorandum of understanding (MoU) with the troika differed from the one agreed in November with the previous government.

Petros Petrides said the main difference was that now, public servants would have to contribute 1.5 per cent of their gross salaries towards what was formerly totally free health care for them.

He said also that families with three or more dependents could choose to be under the state system, again by paying in 1.5 per cent of gross salary. Dependents are offspring up to the age of 21 and any adults who are fully dependent on a guardian. 

Income criteria have been set under a unified system for all subsidised state health care beneficiaries, with those who earn higher still eligible to go to the state sector by paying in set fees.

Some sufferers of chronic diseases will also be eligible for subsidised state care. 

The income criteria start at €15,400 yearly for individuals, sliding upwards to €30,750 for a four-member family, with a further increase of €1,700 per additional dependent.

“Because we could all understand that the defined income criteria were set too low, and as a consequence a large portion of today’s beneficiaries would lose their rights, we tried, and it seems have accomplished, keeping around 200,000 members of the public in state health care,” Petrides said. 

Some 660,000 people were theoretically eligible for state healthcare beforehand, Petrides added. 

Of those, most would opt to use the private sector, he added. However, over the last couple of years many had started increasingly relying on state healthcare as the crisis impacted their ability to go private. 

Most of the other changes were agreed on in the November memorandum and a bill was already submitted in Parliament. 

This includes a symbolic amount of €0.50 for lab tests and for each medicine subscriptions, capped at a maximum of €10 for all subscriptions issued on a two-month period. 

Patients visiting the accident and emergency department will have to pay €10, a move which the health ministry hopes will limit abuse of the system: some 60 per cent of those passing through the country’s emergency departments each year were not thought to have an urgent problem, Petrides said. 

Non-beneficiaries will continue having access to state health care, with hospital charges rising by 30 per cent to come closer to actual costs. But charges will be capped on income criteria, Petrides said.

Under the latest draft MoU agreement, the Cabinet has agreed to implement a restructuring plan for state hospitals and rationalise payments. 

“Waste and abuse in hospitals has been known to us for years,” Petrides said adding that the proposed changes in hospital charges were part of efforts to contain that. 

Implementing the national health scheme (NHS) will have to wait until an actuarial study – that is over four years old – is updated, Petrides said. 

The health ministry hopes to bring in some €60 million from introducing hospital charges and wage contributions, which will go towards the IT-infrastructure necessary for the NHS, Petrides said. 

Health Minister Petros Petrides at a press conference yesterday (PIO)

A LEADING law firm has threatened to take the European Commission, the International Monetary Fund and the Cyprus Republic to court unless the Eurogroup decision which led to a haircut on deposits is reviewed.

In a letter addressed to multiple recipients yesterday, Georgiades & Mylonas Advocates and Legal Consultants demand the immediate release of their client’s money in Laiki Bank and the lifting of any restrictions on deposits.

The lawyers are acting on behalf of Elena Yavorskaya, who held approximately €3.4m in five bank accounts in Laiki Limassol, money that has been frozen since the decision to wind down the bank.

Their letter is addressed to the President of the European Commission Jose Barroso, President of the European Central Bank Mario Draghi, President of the Eurogroup Jeroen Dijsselbloem, Managing Director of the IMF Christine Lagarde, Attorney-general Petros Clerides, Central Bank governor Panicos Demetriades, and Laiki (Popular) Bank.

It says that when their client visited Laiki Bank to find out details about her deposits, “she was informed that her accounts are frozen and that only €100,000 is guaranteed. They further told her that she will only be entitled to withdraw up to that this amount subject to the temporary restrictions imposed by the Central Bank of Cyprus.

“She was also informed that she will probably lose the rest of her money without any remedies.”

The letter adds: “Our client strongly contests the freezing of her accounts and all of the restrictions…without a court judgment and without her being at fault for the bad financial situation of the bank as this amounts to a serious infringement of her human rights.”

The lawyers’ client holds the following responsible for the any loss of money and damages: Laiki, members of the bank’s board, the Central Bank and its governor, the European Commission, member states represented by the Eurogroup, the IMF, the European Central Bank and “any other individuals, entities or institutions that are responsible for the both the dire financial situation that Laiki Bank has encountered.”

They go on to say that their client had “no reason to believe she would end up losing her money in a manner which usually occurs in corrupt, undemocratic, developing third world countries where the rule of law does not apply.”

The lawyers inform those concerned that unless they respond to their client’s request within seven days by settling the matter out of court, “we will proceed with legal action against you without any further warning.

They add that several other clients are considering taking similar legal action.

BANK staff across Cyprus held a two-hour strike from 12.30pm until 2.30pm yesterday before marching on Parliament from their union ETYK’s headquarters as part of a protest to protect their pension funds and jobs.

Hundreds of protesters gathered outside the House around 4pm chanting: ‘Provident Funds belong to our children’ and ‘Get your hands off our provident funds and our jobs’. Banners saying: ‘You are murdering our future and our dreams’ and ‘Years of hard work are being given a haircut’ were carried by angry demonstrators. 

“We feel disappointed and desperate because we could lose both our jobs and our provident funds,” 33-year-old Laiki Bank employee Anthi Pourou said. “We came here in the hope that we could make a difference that the MPs will hear us and meet our demands,” she added. Asked whether she felt something was achieved by the two hour strike she replied: “We showed we have some form of power too and we are enough people to affect a change.”

A 35-year-old Bank of Cyprus employee, Marios, said he understood that people would end up losing their jobs or would have to take pay cuts but felt it was unacceptable for workers’ provident funds to be touched. “Taking money from our provident funds is like stealing money right out of our pockets as we have spent years contributing to the fund ourselves,” he said.

Feelings of insecurity and worry filled 37-year-old Bank of Cyprus employee, Yiannos Assiotis. “Nobody really knows what will happen and if they do know they certainly haven’t told us,” he said. “I have worked for Bank of Cyprus for 13 years and contributed to my provident fund for that long also so all I really want is that to be saved as it is a cushion I would be able to live with if I end up losing my job,” he added.

New Finance Minister, Haris Georgiades met officials from trade union SEK to present proposals regarding the provident funds. General-secretary of SEK, Nicos Moiseos said the union would look at the minister’s proposals before submitting their own. 

ETYK announced in a written statement on Wednesday that it was concerned because despite the government’s promises “issues that regard our future and the future of our children are still pending.”

The Federation of Employers and Industrialists (OEV) condemned the strike.

“During this period when unemployment in Cyprus is rising and businesses are trying to survive within very difficult conditions, strikes destabilise the situation and worsen morale even more,” the statement said.

It said businessmen and employees in the private sector were living the nightmare of losing their savings, their investments and their jobs. “It is inconceivable that while the economy is falling to pieces, ETYK are organising strikes,” OEV said.

The Federation believes that unions should instead contribute to the restoration of peace and trust in the banking sector. “Strikes put more pressure on a very fragile sector at a time when it needs stability more than ever,” OEV concluded.

Bank staff outside parliament (Christos Theodorides)

CYPRUS should brace itself for an extended period of difficulty in the near term after sealing a bailout deal forcing it to forgo much of its banking sector, the former finance minister said.

Michalis Sarris, who stepped down as finance minister just five weeks into the job on Tuesday, said in an interview that Cyprus had made mistakes, but said lenders and European Union partners had treated Cyprus unfairly.

"Clearly... mistakes were made, there was excessive growth in bank credit, in government spending. But I don't think it needed to come to this. "I think this could have been corrected without this really seismic assault on the Cyprus economy," he said.

Sarris' comments came a day after he wrapped up onerous bailout negotiations with the European Union and the International Monetary Fund. He stepped down stating his job was done, and that his position was untenable since a probe into the island's economic demise was likely to include his term too as head of one of a major Cypriot lender before he became minister.

In return for €10 billion in aid, authorities had to wind down the island's second-largest bank, Popular and force heavy losses on wealthier depositors in Bank of Cyprus, the island's biggest bank.

Both banks, which held considerable quantities in Greek government bonds, suffered huge losses on a write-down on Greek debt agreed by the European Union in late 2011. That decision, Sarris said, was "very unwise".

Under terms of the bailout deal the island's budget deficit is expected to reach 2.4 per cent of gross domestic product this year, with the primary deficit growing to 4.25 per cent in 2014 .

Those deficit targets in nominal terms and as a percentage of GDP imply that international lenders expect the Cypriot economy to contract almost 8 per cent in 2013, shrink by a further 3 per cent in 2014 and return to around 1 per cent growth in 2015 and 2016.

Bailout talks were overshadowed by accusations the island's banking sector, at about eight times GDP, was opaque and facilitating money laundering. "They basically really accused us that we were sitting back and printing money, having a lot of foreign firms coming through Cyprus, offering them services and having a good time. I think that was unfair," Sarris said.

Signing the bailout deal was critical, since it removed a "protracted period of uncertainty which was killing the economy". But, Sarris said, "the prospects for the economy in the next few months are really very very unfavourable".

"I think the restrictive conditions are tending to offset any restoration of confidence that could have propelled consumption and investment spending that are key to recovery. So we are looking at an extended period of difficulty." (R)

Former Finance Minister Michalis Sarris believes Cyprus was treated 'unfairly' by its lenders

THE MONASTERY of Kykkos has secured a court injunction blocking the sale of a plot of land in Nicosia that was offered to the Greek government more than 10 years ago.

In 1998 the monastery – one of the wealthiest dioceses in Cyprus – struck a deal with the Greek government, under which the former would donate four acres on condition that an embassy was built at the location.

However the acreage was deemed not to be large enough, because the Greek government also planned to build the ambassador’s residence on the same site. An agreement was therefore made where the monastery would donate the original four acres and sell four more acres for €500,000.

The land in question sits in prime real estate across the Kykkos Metochi, near the Russian and US embassies.

But the agreement stipulated that, if the purpose of the donation – building an embassy – was not fulfilled in 10 years’ time, then the Greek government would return the land and the monastery would pay back the €500,000 plus interest.

Things apparently went sour two months ago when Greece’s ministry of finance decided to put the plot up for sale and issued a call for tenders, with a submission deadline of March 19.

In early March Kykkos monastery moved legally to block the sale, which it said was in breach of its agreement with the Greek government. On March 12 the monastery secured an injunction from Nicosia district court.

The next court hearing is reportedly scheduled for today, where lawyers representing the Greek government will seek to annul the injunction.

A number of Cypriot developers bid for the land. One of the companies belonged to the Loutsios family, in-laws of the President, who have been in the news of late after it transpired that they moved millions of euros abroad shortly before the Eurogroup meeting that decided a haircut on bank deposits.

In response to those reports, the family issued a statement explaining that the money – some €6.5m – was transferred to an account in a London bank for the purpose of concluding a land deal with the Greek government. It turns out this is the same land.

The Loutsios family had also said that if their bid was not successful, they would repatriate the money back to Cyprus and suffer the haircut on deposits of over €100,000. 

That was intended to dispel any notion that the cash was moved abroad for any reason other than for the land deal.

It seems that the Loutsios family will now have to make good on their promise: earlier this week the relevant body in Greece decided to award the tender to another company, Tofarco Limited, one of the largest land developers in Cyprus, for €8.3m.

However the actual sale cannot proceed unless the injunction in Cyprus is lifted.

Tofarco, the successful bidder, declined any comment yesterday.

Costas Velaris, the lawyer for Kykkos monastery, told Phileleftheros that the 1998 deal was brokered by the then President of the Hellenic Republic Costis Stefanopoulos and former Greek foreign minister Theodoros Pangalos. During a visit to Cyprus that year, Stefanopoulos had broached the subject of the Greek embassy here acquiring self-owned premises.  Nikiforos, then Abbot of Kykkos, agreed to help out by offering the land.

Velaris told the paper that in 2009 the Kykkos monastery queried the Greek government as to its intentions, and were assured the embassy would be erected at the site but at a later date.

Should the monastery succeed in thwarting the sale of the plot by the Greek government, it would then be able to sell the land itself, particularly now that there are suitors.

Nikiforos, then Abbot of Kykkos, agreed to help out at the time by offering the land

A PROBE into the acquisition by Bank of Cyprus (BoC) of €2.4 billion worth of Greek debt found that there was no clear justification or rationale for the decision to accumulate such a high number of bonds, ultimately forcing the lender to seek state assistance.

Global forensic and dispute services provider Alvarez and Marsal said BoC documents did not clearly specify the rationale of acquiring such a large amount, which later caused heavy losses due to the EU decision to write-down Greek debt (GGB).

In its report, the firm said that despite the lack of formal documentation, it appeared that the decision had been driven by the management’s desire to deliver net income interest and profit growth.

“Based on emails and activity in 2009, it appears that BoC pursued an “absolute yield” strategy where they took advantage of selling opportunities to generate disposal gains, especially as reporting periods approached,” the report said.

BoC incurred a €1.9 billion loss because of the write-down towards the end of 2011.

Until 2009, BoC held less than €500 million worth of GGBs but during the first half of the year their holdings spiked to €1.75 billion.

“During 2009, BoC appears to have actively traded GGBs such that by the end of October 2009, BoC’s holding had been divested to around €30 million,” the report said.

The lender’s GGB portfolio remained at a negligible level throughout November 2009.

In fact, on December 10, 2009, Yiannis Kypri, group chief general manager at the time, informed the market that BoC’s exposure to GGBs had dropped to €100 million.

However, on the same day, BoC started repurchasing GGBs, with its portfolio rising to almost €2.4 billion by June 2010.

The report said the bank’s treasury department invested in the highest yielding bonds, including longer maturity inflation linked paper, which resulted in BoC ultimately suffering higher losses.

“BoC became reliant on Treasury profits and its GGB strategy, with the equivalent of almost 30 per cent of profits before tax coming from GGB related activity,” the report said.

The increases in GGB holdings had been approved by ALCO, the committee responsible for market risk management, but without any documented rationale or evidence to support the levels approved.

The report said there was a dominance of senior executives, particularly CEO Andreas Eliades and Nicolas Karydas, group general manager risk management and markets, “resulting in a culture whereby senior management decisions were not challenged.”

Both Eliades and Karydas were members of the executive decision making committees and those risk committees designed to monitor the bank’s activities.

And some of the non executive board members did not have banking experience, exceeded the allowable credit facilities, and appeared not to have received adequate training to fulfil the role, the report said.

Karydas holding the dual role of general manager risk management and general manager marketers, “did not constitute best practice and posed potential conflict of interest.”

“The inherent conflicts arising from senior executives’ participation in all major strategic and risk management bodies, at both executive and board level, possibly prevented these committees from sufficiently questioning the investment in GGBs and the subsequent decision to maintain the portfolio despite the deteriorating GGB market,” the firm said.

Regarding the lender’s risk management processes, the firm said “with the benefit of hindsight, there was clearly an inability to adequately consider the risk associated with the purchase of GGBs, and in particular there was limited recognition that a default could actually take place.”

Alvarez and Marsal said the CBC supervision department was potentially under-resourced, both in terms of numbers and experience of staff members.

“In addition, the frequency and timeliness of sovereign bond holding reports, prepared by BoC and submitted to CBC, meant that the CBC would not have been aware that BoC significantly increased its GGB holdings between December 2009 and March 2010, until after the event.”

Despite requesting details of the banks’ sovereign bond holdings, the CBC did not have any formal asset concentration monitoring in place, the findings said.

As such, BoC’s high concentration of GGBs was not in breach of any regulatory limits.

“The CBC formally requested information regarding BoC’s holdings of GGBs in March 2010,” but did not receive any written response.

“The CBC did not follow up on this on a timely basis; the reason for which is unclear,” the report said.

According to A&M there was limited recognition at the BoC that a default could actually take place

THE Central Bank of Cyprus could not do much, under the current legal and regulatory framework, to stop the cross-border merger between Laiki and Greece’s Marfin Egnatia that effectively led to the former’s downfall, an investigation has found.

“The structure of the regulation and legislation is such that under the Mergers Directive the bank did not require any authorisation from the CBC (Central Bank of Cyprus), this resulted in the bank being able to transfer the assets and liabilities to Cyprus without approval from the CBC,” a findings report said.

The CBC was left with one option, the firm said, either to accept the conversion of the Greek subsidiary or force the bank to cease operations in Greece.

“Given the desire to maintain the bank’s headquarters in Cyprus and the perceived regulatory benefits, the CBC notified the BOG (Bank of Greece) of the creation of Marfin Popular Bank’s branch in Greece.”

The merger meant the Cypriot government had to include the liabilities of the Greek operations when asked to bail out Laiki in the summer of 2012.

The previous administration had blamed former Central Bank governor Athanasios Orphanides for the debacle, suggesting that he should have stopped the merger from going through.

That came after the heavy losses the lender incurred from a write-down on Greek debt decided by the EU, including Cyprus, in 2011.

The report was compiled by global forensics and dispute services provider Alvarez and Marsal, which had been tasked with probing the reasons why the island’s two biggest banks were forced to seek state assistance.

Excerpts from the hefty report were leaked to the media despite it being classified as “strictly private and confidential.” 

According to the report, revoking the approval could have had a significant impact on the Cypriot banking system as the CBC would have needed to set out the reasons for its refusal, such as the need to safeguard the interests of the depositors.

“Mr. Costas Poullis, former head of supervision at CBC, stated in his interview that revoking the approval for MPB to operate a branch in Greece, and therefore essentially terminating the bank’s operations in Greece, was not an option as it would have had a significant impact on the confidence of the banking sector,” the report said.

After the conversion, the CBC enforced stricter capital requirements on the bank, Poullis said.

Marfin Egnatia brought with it some €2.0 billion in Greek Government Bonds – Laiki already had €1.0 billion -- €800 million in loans to various entities for the purpose of investing in Marfin Investment Group (MIG), loans granted to the MIG group on favourable terms – e.g. low interest, long term repayment – and deterioration of profits by 68 per cent due to low margin and an increase in provisions for non-performing loans.

Following the merger, when supervision moved to Cyprus, the CBC required MPB to hold 1.56 billion of additional capital against its sovereign bond portfolio, and €2.1 billion against its loan portfolio, 51 per cent of which was in Greece.

“Based on the findings of the investigation, it would appear that the current regulation and legislation does not provide sufficient support to the CBC where a Cypriot bank wishes to convert an existing foreign subsidiary into a branch,” the Alvarez and Marsal report said.

The firm recommended a review of the framework and consideration of amendments that would give the CBC more power when dealing with such cases.

DELETION of data allegedly took place on computers belonging to senior Bank of Cyprus (BoC) executives, according to the leaked findings of a probe into the circumstances that forced the island’s biggest lenders to seek state assistance.

Alvarez and Marsal, the firm tasked with investigating why Bank of Cyprus and Laiki sought state assistance, said the information provided by BoC was incomplete and data deleting software were found on the computers of two senior executives.

“Our computer forensic technologists have found that the computers of two employees, (former CEO) Mr. (Andreas) Eliades and (senior manager group treasury and private banking) Christakis Patsalides, have had wiping software loaded, which is not part of the standard software installations at the BoC,” A&M said. “Mass deletion of data appears to have been undertaken on the Patsalides computer on October 18, 2012.”

A&M’s findings were handed over to parliament on Wednesday.

The firm said some deletion had taken place after a data preservation notice was issued to BoC by the Central Bank of Cyprus (CBC) on August 21, 2012.

Investigators found no e-mail files, mailboxes or user documents on Eliades’ desktop computer.

This, according to the firm, could suggest that the computer was not used by Eliades or the hard drive was formatted or wiped by BoC IT after the former CEO left the bank or it was wiped using data removal software such as CCleaner installed on the computer.

A&M said there were more gaps in the data collection.

“We had significant gaps in the e-mail data received from BoC for the period 2007 to 2010, a key period for our scope of investigation,” the firm said.

The reason was the lack of an e-mail archiving process before late in 2010 or early 2011, the time when e-mail systems were upgraded.

No e-mail backups were performed before the upgrade, the report said.

A&M said its team was not authorised to issue subpoenas or compel anyone to attend an interview or compel the production documents and data if they did not work for an entity supervised by the CBC.

However, any conduct identified as suspicious will be surrendered to the attorney-general, A&M said, citing the CBC.

A&M looked into how BoC accumulated €2.4 billion worth of Greek government bonds (GGBs), later suffering huge losses because of that.

It also looked into BoC’s expansion to Romania and Russia.

The investigation of Laiki however, does not appear to be as detailed or in-depth.

A&M appeared – at least from the leaked documents --  to have focused only on Laiki’s merger with Greek lender Marfin Egnatia Bank (MEB), and only from the side of the CBC.

There was also no reference to the lender’s GGB holdings, most of which – €2.0 billion – had been held by MEB before the merger.

It was not immediately known why the probe did not appear to have touched upon any other aspects of the Laiki debacle, especially since according to a statement by CBC Governor Panicos Demetriades – attached to the A&M report – “Next matters to be addressed include the Cyprus Popular Bank acquisition of GGBs and international expansion, along with oversight by the CBC and status supervision.”

BANK EMPLOYEES quit work at noon yesterday so they could take part in a demonstration, organised by their union ETYK which demands that bank provident funds were fully protected and bank jobs secured. The unions have not lost their arrogance, despite the collapse of the economy. Unions of the Electricity Authority of Cyprus have demanded that their provident fund deposits in Laiki, worth €27 million and those in the Bank of Cyprus (€15 million) were saved by the state.

As we had warned last week, the government was making a big mistake in saving some deposits in Laiki – universities, schools and the Laiki provident fund – because it set a precedent and hundreds of equally ‘deserving’ account holders would, justifiably, demand special treatment. Why was it acceptable to save the provident fund of Laiki employees from Laiki and not the EAC’s? And did the Larnaca Bishopric not have a right to demand an exemption of the deposit of a fund for orphans?

Once a bank is resolved, there is no justice or fairness for depositors, but the state made a big mistake in exempting some accounts. Why should Laiki employees’ provident funds be saved, when everyone else who had deposits in Laiki will lose their money? Of course, after this victory ETYK has upped its demands, now seeking that their members’ provident fund at the Bank of Cyprus is not subject to the haircut that all other deposits would suffer. 

It was granted one exemption by the government, now it is demanding another and we would not be surprised if the government did not oblige again, imposing bigger losses on the other Bank of Cyprus depositors to satisfy ETYK, so its members would lose nothing of the obscenely high retirement gratuity (in the region of €500,000) they receive and 90 per cent of which is contributed by the bank. Even if they received half, they should be grateful as the rest would go back to the bank. Of course, no politician would have the guts to stand up and say this; on the contrary, they are all demanding the provident funds are saved, regardless of what this means.

And once the provident funds are safeguarded ETYK will push for the other demand it was making at yesterday’s demonstration to be satisfied – no job losses. The Bank of Cyprus which has been forced to take on all Laiki’s staff could be pressured by the politicians to keep everyone on the payroll. The two biggest banks may have collapsed but the bank employees union is still calling the shots.