CYPRUS: Hellenic Bank slams PIMCO on recap needs

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 * Bank of Cyprus, Laiki to get a copy of report on Monday *

Hellenic Bank, the island’s third biggest lender, has challenged the PIMCO report on the recapitalisation needs of the Cyprus banking system, saying that the global bond manager has made gross errors in its estimates of the banks’ assets and liabilities.

“We don’t need anyone to tell us about our capital requirements,” said the bank’s CEO, Makis Keravnos, during a press briefing of the 2012 results on Friday.

The bank announced a loss of 23.4 mln euros, a quarter of the 100.7 mln losses it reported for 2011 when the bulk of its bonds underwent a 70% writedown.

Hellenic aims to see a turnaround in 2013 after cost cutting and reduction in loans, as well as a healthy increase in deposits, mostly locally.

The PIMCO report, which, although completed for more than a month has been kept secret and not released to the banks involved, gave a “baseline” and “extreme case” scenario, suggesting Cypriot banks would need a recapitalisation of between 6 to 9 bln euros as part of a 17.5 bln euro bailout.

PIMCO’s summary, leaked by the Central Bank to the state-controlled Cyprus News Agency on the eve of critical presidential elections, said that the Bank of Cyprus and Popular Laiki Bank would need 2.8 bln euros each according to the baseline scenario, with 4.0 bln and 3.8 bln euros, respectively, under the extreme scenario.

Hellenic would not need any funds under the baseline scenario, but would require 333 mln euros under the extreme case, the PIMCO report added.

“This is ridiculous. We have not seen the report, we do not know the methodology used and we disagree with both scenarios,” a senior banker told the Financial Mirror on condition of anonymity.

“In the baseline scenario, we would not only not need funds, but we have projected a surplus, while we would still not need any funds even under the most adverse scenario,” the official said.

CEO Keravnos was not as critical, telling reporters during the briefing earlier in the day that “we are content that both the Central Bank [of Cyprus] and the Ministry of Finance agree with us that we should only be talking about the baseline scenario.”

The state news agency announced later on Friday that the Central Bank would release the PIMCO report to Bank of Cyprus and Laiki on Monday, so that they may conclude their annual reports for 2012.

The Central Bank of Cyprus, the ‘Troika’ of international lenders and Cyprus government officials set up a steering committee to set the ground rules for PIMCO’s due diligence report, based on which the European Union, the European Central Bank and the International Monetary Fund would release the funds to rescue the Cyprus economy.

The leak of PIMCO’s due diligence infuriated the real estate sector where the report suggested that beyond the 30% fall in property prices in the past five years, real estate should see a further drop of 30-40% in order to make the banks’ portfolio of property holdings more sustainable.

“The unique features of the Cyprus property market, the seasonality, the diverse price structure from region to region and the demand based on location, do not seem to have been taken into consideration by the PIMCO investigators,” the senior banker told the Financial Mirror.

“Is that why we paid 1.7 mln euros for our share of the PIMCO report?” the banker added.

The total bill for the report is estimated at 15 mln euros (25 mln dollars), with the Central Bank coming under fire for the mandate given to the company that has expressly argued in favour of Greece exiting the euro and doubting the future of the European currency.

Cyprus applied for an official bailout last summer due to the two main banks’ exposure to toxic Greek government bonds and their subsequent haircut, as well as a runaway public sector deficit and the rollover of government debt.