http://ftalphaville.ft.com/blog/2012/06/15/1045041/cyprus-popular-bank-money-is-gone-allegedly/
Cyprus Popular Bank: ‘Money is gone’ (allegedly)
We must return to Cyprus Popular Bank, the bank that’s essentially forcing Cyprus toseek a bailout – something that may well be announced some time this weekend. Most reports say that it’s problems are down to write-downs following the Greek restructuring. True, the value of Popular Bank’s investment in Greek sovereign debt was written down to €710m from €3.05bn. But there’s more to the story, which involves inter alia speculating monks, unusual lending practices and a man called Andreas Vgenopoulos.
Crucially, it suggests that concerns about the quality of the bank’s assets could be an important reason for why private sources cannot be found to fund the €2bn capital shortfall.
Reuters has a fascinating report looking into the history of the bank, which used to be called Marfin Popular Bank until the government took over managing it in May.
Back in 2007 Andreas Vgenopoulos, a Greek businessman, decided to split up his company, the Marfin group, to form the Marfin bank and the Marfin Investment Group (which holds stakes in various Greek and European non-banking businesses). There was a €5.1bn rights issue for MIG, which diluted Marfin bank’s stake in the company down to 6.5 per cent from 97 per cent. Marfin bank, Cyprus-based, and MIG, Athens-based, became legally separate.
Not long after, questions emerged about where the money for the rights issue had come from. From Reuters:
The trigger for those questions was a scandal over the Vatopedi Monastery on Mount Athos, on a remote peninsula in the north of the country.Greek investigative journalist Kostas Vaxevanis showed how the Vatopedi monks had engaged political help to obtain the rights to a nature reserve in northern Greece and then, with more help, to swap it for valuable state-owned real estate across the country. The monks were also major players on the stock market and received 109 million euros in loans from Marfin bank.
An inquiry was ordered to look into the situation:
A special inquiry on Vatopedi in 2010 heard the monks spent 30 million euros they borrowed from Marfin bank, the monastery’s biggest lender, to buy shares in the MIG rights issue, plus another 42 million euros in other investment schemes with MIG or its associates.Greek MPs went on to compel the Bank of Greece to provide details of all the loans that Marfin Popular Bank’s two Greek subsidiaries at the time, Marfin-Egnatia and the Investment Bank of Greece, had made to investors to take part in the capital-raising.
The enquiry raised serious issues about the regulatory oversight.It described a “heap of violations, perjury, and possibly falsification of documents” by those directly involved with Vatopedi, as well as by Marfin’s two Greek subsidiaries. The “tolerant” role of the Bank of Greece left members of the committee “particularly troubled.”In a letter to Greece’s supreme court, the chairman of the committee, Dimitris Tsironis of the socialist party PASOK, asked for an investigation into allegedly illegal actions by Marfin and others. Tsironis also made wider allegations, arguing that Marfin-Egnatia had become a vehicle to pour nearly 2 billion euros into the hands of a small group of MIG investors.There may be worse to come…The former Marfin’s new management believes the bank’s exposure to loans given in 2007 to buy MIG shares may be much greater than has been reported. A total of more than 510 million euros has still not been paid back. With MIG’s shares trading at just 3 per cent of their 2007 level, the collateral for these loans is now valued at around 140 million euros.The joke in Greece, apparently, is that MIG stands for “Money Is Gone”.Vgenopoulos was pressured to resign from the chairmanship of the bank, who’s management was taken over by the state in May. He has since agitated from the sidelines, accusing the Cypriot government of responsibility for the bank’s problems. But he remains chairman of MIG.The bank’s new management estimates that nearly a third of the capital shortfall is down to provisions for bad loans in Greece. Again, from Reuters:According to [Michael] Sarris [former Cypriot finance minister who is now chairman of the bank], the “single most important factor” dissuading investors from helping recapitalize the bank was now not sovereign bonds but concern that further losses in Greece could materialize.Reports have suggested that Cyprus may turn to Russia for a loan to bail out the bank. It would make sense considering that, according to Kathmerini, the bank has the biggest share of Russian deposits in the Cypriot banking system and Cyprus in general is a popular place for Russians to stow away their deposits. From the same article in the Greek paper:During his visit in the fall of 2010, the Russian president had described Cyprus as the most important channel for attracting foreign investment to his country.Randomly, Dubai Group, the investment conglomerate controlled by Sheikh Mohammed bin Rashid al-Maktoum, is the biggest shareholder in the Marfin bank, and the second biggest in MIG. Given its own problems, presumably Dubai declined to dig deep and fill the capital shortfall.To conclude, there’s still a lot to this story that’s we don’t fully understand, but it seemed important to flag up that the bank’s, and by extension, Cyprus’ problems are not just down its to exposure to Greek sovereign debt. There is a more complex history that should be taken into account. It raises important questions about the quality of regulatory oversight in both Greece and Cyrpus with implications for the health of their banking systems.
and.......
http://www.cyprus-mail.com/greece/bailout-decision-waits-greece/20120616
CYPRUS will wait until after Greece's cliffhanger vote to decide how it will bail out its banking sector, the finance minister said yesterday, amid fears a Greek exit from the euro zone would cause funding needs to explode.
The island nation, whose banks are highly exposed to the debts of its larger neighbour Greece, is closely watching the outcome of tomorrow's Greek election, which European leaders fear could lead to Athens eventually leaving the euro zone.
Cyprus already needs urgently to find €1.8 billion by the end of this month to bail out its second largest bank, which saw its balance sheet ruined by a write-down in Greek government debt in March. Were Greece to leave the euro, Cypriot banks would face problems many times as large.
Cyprus has been considering options including a bailout from the EU rescue fund - the European Financial Security Fund (EFSF) - or a bilateral loan, perhaps from Russia, which already lent Nicosia €2.5 billion euros last year.
Finance Minister Vassos Shiarly said EFSF aid was not the only option, but that a decision on how to find funding would not be taken until after the Greek vote result.
"It is not necessary that we will seek a loan from the mechanism. There are other options, or a combination of options," he was quoted as saying on Stockwatch, a Cypriot financial news website.
"But these issues will be decided when we know the outcome of the vote in Greece... The result of the election in Greece will define the pattern of decisions for Cyprus and other EU member states," Shiarly said.
The government said earlier yesterday it was "working away from the glare of publicity" to find the money for the bank recapitalisation, but gave no further details.
"The President of the Republic will soon meet with political parties to brief them and discuss issues concerning efforts to deal with the challenges that lie ahead for our country," government spokesman Stefanos Stefanou said in a written statement.
Whatever the Greek election outcome, cash-starved Cyprus faces the €1.8 billion bill - equivalent to about 10 per cent of GDP - to bail out the Cyprus Popular Bank if, as expected, the bank fails to raise the cash privately.
The bank's balance sheet was damaged after it wrote down the value of its holdings of Greek government debt in the wake of a huge restructuring this year aimed at bailing out Athens.
Were Greece to tumble out of the euro zone, economists estimate that banks in Cyprus could face damage of €10 billion - crippling for a tiny country with just 1 million people.
Opposition parties say the authorities are dragging their feet on fiscal measures needed to shore up the economy before seeking aid.
Stefanou rejected such accusations, saying they send "the wrong message about the economy of Cyprus, which, despite its problems is in a better state than the economies of many other countries in the European Union."
Cyprus Popular needs to replenish its core tier 1 capital - an indicator of financial strength - to 9 per cent by a June 30 deadline set by European banking regulators, which means any bailout must come by then.
and.....
http://www.cyprus-mail.com/moscow/cyprus-teeters-between-moscow-and-eu/20120616
FROM THE sharp-suited 'biznesmeny' in their black BMWs, to the grocery selling imported vodka and whole smoked whitefish, to its Soviet-educated Communist president, Cyprus speaks with an unmistakable Russian accent.
And as it hurtles towards a seemingly inevitable financial rescue, Cyprus finds itself teetering between Moscow and Brussels.
Cyprus took a €2.5 billion loan from Russia last year. It now urgently needs at least €1.8 billion by the end of this month to rescue its banking sector, torpedoed by its exposure to its bigger brother, Greece.
The actual bill is likely to be several times as high, and if Greece were to exit the eurozone it could run into double digits.
Many in Cyprus think the only place it could find that kind of cash would be Moscow. Especially if President Demetris Christofias wants to avoid the tight conditions Brussels attaches to rescue funds.
Cyprus officials have said they are in discussion with Moscow for a loan of €4-€5 billion although the finance ministry in Moscow says it has received no such request.
The question is: what would Russia get in return? And how would that effect relations with the rest of the EU?
If Cyprus, which assumes the rotating presidency on July 1, becomes so deeply in hock to Moscow, it would be an enormous embarrassment, both to Brussels and to many in Cyprus who see its long term future with the West, not the East.
"Two thirds of your GDP is owed to Mr Putin? That's something that even worries Russian businesses here, who worry that if Cyprus falls out with Russia they have to do what Moscow says," said Fiona Mullen, economist at Sapienta.
Russian funding would be easier for Nicosia to accept than funding from Brussels, which would require Christofias to make budget cuts, and enrage voters before the elections next February.
It isn't hard to find reasons why Moscow would be willing to be generous - and more lenient with its terms than Brussels.
Although the debt would be huge, in the long term loans to Cyprus are probably a safe bet. Despite its dire cash flow problems now, Cyprus expects a windfall of wealth in the next decade from its offshore gas fields. Russian firms are among the bidders.
Nicosia insists the loan it has already accepted from Russia, and any others it might agree, will have no impact on the bidding. But firms no doubt will expect Moscow's generosity to be taken into account.
Russia also shares Cyprus’ desire to avoid intrusive fiscal conditions that might come with a bailout from Brussels.
With its 10 per cent corporation tax - the EU's lowest - Cyprus serves as the perfect offshore base for Russian money.
"Cyprus will go for any deal that allows them to avoid changing laws and regulations that make it the tax haven that it is," said Hubert Faustmann, politics professor at the University of Nicosia.
"Common sense would point in the Russian direction rather than Brussels, that the strings attached to the EU loan would be tighter than a Russian loan," he added. "The Russians have a strong interest in Cyprus staying the way it is...,"
But it may not be a question of either Brussels or Moscow. Cyprus might need help from both.
One solution, said Stelios Platis who runs a financial consultancy in Cyprus, would be for Cyprus to turn to the EU’s EFSF fund to bail out its banking sector while continuing to look to Moscow for loans to balance its state budget.
But it still would add to the country's sovereign debt, so EU officials will probably need assurances that Nicosia has funding for its public finances in place, meaning a bilateral loan could be part of a grand double deal. (Reuters)
