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Greek depositors to claim €200 mln from Cyprus government

26 March, 2014

 * Cyprus violated treaty protecting investors from Greece *

A group of Greek depositors and bondholders of Laiki Popular Bank and the Bank of Cyprus intend to bring a claim against the Cyprus government in international arbitration, to be administered by the International Centre for Settlement of Investment Disputes (ICSID) in Washington DC, part of the World Bank Group.
The number of claimants and the size of the claim has yet to be determined, but Financial Mirror calculations suggest this could be in the hundreds of millions of euros.
From the Bank of Cyprus alone, 5% of bail-in deposits related to Greek individuals or legal entities, which based on the EUR 3.8 bln of bailed-in deposits, could relate to a claim of about 200 mln.
Furthermore, a rough calculation of the bonds outstanding at the time of the bail-in was that 45% were listed on the Athens Stock Exchange (ASE) out of a total of EUR 600 mln capital securities.
“But this does not imply though that they were owned by Greek citizens,” explained a senior financial analyst in Nicosia.
Figures for Greek-owned deposits or bonds at Laiki Popular Bank were not available. However, as 18% of Bank of Cyprus shareholders are the legacy Laiki depositors, this could also complicate matters more.
Officials at the Ministry of Finance could not confirm or deny knowledge of these claims, but sufficed to say that all claims of a legal nature are handled by the Attorney General’s office.
This could be the worst blow to the current administration that has taken about a year to try and recover from the haircut on deposits and subsequent bail-in of unsecured deposits that brought on a Pandora’s box of harsh austerity measures combined with reforms to prop-up the banking sector, the bankrupt Cooperative movement and the runaway fiscal deficit piled up by the previous government.
Worse still, the government has opted not to prosecute outgoing Central Bank Governor Panicos Demetriades and the previous administration of communist president Demetris Christofias for agreeing to hand over the Greek operations of the three Cypriot banks – Bank of Cyprus, Laiki, Hellenic – on a silver plate to Piraeus Bank in a deal concocted by the Bank of Greece and the European Central Bank. All the deposits in those banks were subsequently transferred to the new owner, but the risk for underwriting the debt in Greece was burdened on the banks in Cyprus.
“Our intention is not to go against Cyprus and the Cypriot people. It is more to do about reforms in a fair manner and the Cyprus government respecting the bilateral treaty it has signed with Greece to protect the rights of investors,” explained George Lambrou, a partner at the international law firm Thomas Cooper and also an arbitrator on the ICSID, who is advising the claimants.
He told the Financial Mirror that in such cases there is usually a 6-month negotiating period, whereby both sides must try to achieve an amicable settlement. If not, the matter is referred to the ICSID, of which Cyprus is a signatory.
This is a treaty-based dispute and Cyprus courts have no jurisdiction, while the awards are not appealable, they are final and binding.
“This is very similar to a claim in Argentina by about 180,000 Italian bondholders,” explained Lambrou, adding that the cost of the claim alone can run into the millions.
The core of the dispute, he explained, is that Cyprus has made certain promises to attract foreign investors, and the bail-in of deposits is in violation of a treaty, similar to 20 others that Cyprus has signed.
Interestingly, Russia has not ratified the Cyprus treaty, so depositors and bondholders in Russia cannot pursue their own claim.
Lambrou said that the claim is also unrelated to efforts by former Bank of Cyprus shareholders who are seeking damages from the Troika (IMF, ECB and Euro Commission) or at least a restitution to their original shareholding.
“This remedy is specifically for Greek investors,” he said.
These investors believe that the measures were taken in breach of the terms of the Bilateral Investment Treaty signed between Cyprus and Greece in March 1992.
The purpose of the treaty is for both states to mutually promote and protect investments by Greek and Cypriot investors in each other’s territory and to ensure equality of treatment of those investments. The Greek investors believe their investments were expropriated without adequate compensation, and they complain that Cypriot investors were treated more favourably because many Cypriot investments were exempt from the "bail in" measures.
Lambrou added that the Cyprus government discriminated by exempting groups of Cypriot investors and legal entities, such as schools and universities, charities, insurance funds, state and public service depositors, and other.
He added that other claimants may also join, as long as they are resident in Greece or Greek legal entities. Lambrou concluded that the Laiki Bank depositors’ association, SYKALA, has also been briefed of the action.

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