CYPRUS: IMF estimates Co-op sale cost the taxpayer EUR 3.5 bln

The International Monetary Fund has estimated the fiscal cost of the sale agreement of the Co-op’s good asset portfolio to Hellenic Bank at EUR 3.5 bln, equivalent to 17% of Cyprus’ GDP.

Calculating the immediate and possible cost to the taxpayer, the IMF considered bonds and cash given by the state to support the ailing Co-op bank.

 

IMF has also taken into account assets worth EUR 2.6 bln which are to cover possible unexpected damages, although it does not expect damages to exceed EUR 155 mln.

 

Possible costs may also arise from the exchange of bonds previously issued for short-term bonds to be paid over the next five years, with an annual increase in gross financing needs of EUR 0.5- EUR 0.75 bln.

 

The IMF also took into consideration compensation paid out to almost one-third of the defunct Co-op’s 2,600 staff, estimated at a total of EUR 128 mln.

 

It said the downfall of the bank took place despite efforts to deal with Non-performing loans initiated in 2014, as the Co-op was exposed to a high number of housing loans.

 

In March, the Co-op launched a campaign to attract private investors, with the government stepping in to support the effort, and to stop a bank run over fears the Co-op was going under. The government made a deposit of EUR 2.35 bln to ease customer fears.

 

In June the sale of the Co-op’s good assets to Hellenic Bank was approved by local authorities and was later given the green light from the European monetary authorities as the deal was found not to be in contravention of EU state funding regulations.

 

The deal provides that Hellenic Bank makes capital increases of EUR 150 mln, which, according to reports, the current shareholders are challenging as they believe that negative goodwill occurring from the acquisition itself has changed the bank’s capital needs.

 

With the acquisition of the Co-op, HB added some EUR 17 bln worth of assets to its EUR 6.7 bln, becoming the second largest bank on the island, after Bank of Cyprus.