Finance Minister Harris Georgiades bears the biggest responsibility for the failure of the Cyprus Cooperative Bank which was broken up sold last year, a Committee of Inquiry report said on Wednesday.
The struggling Co-op, Cyprus’ second largest lender which was bailed out by the state in 2013 and in 2015 with €1.7 bln injection, was split between a bad bank and a good bank. The good assets were sold to Hellenic Bank, which paid the state €74 mln and received a balance sheet of €10.3 bln.
«The Finance Minister bears the heaviest responsibilities for the failure of the Cooperative Credit Sector (CCS). We could say that (his responsibilities) are proportionally similar to those of a big shareholder in private company, which failed due to his mismanagement,” the Committee said in an 844-page report made public Wednesday.
The Co-op failed to reduce its huge burden of non-performing loans despite warnings by the European Central Bank and the local regulator, the Central Bank of Cyprus.
After an on-site inspection by the Single Supervisory Mechanism (SSM), the Co-op reported a provisioning gap of €816 mln, prompting the state to sell its performing operations to Hellenic, while creating a state-owned asset management company to wind down the bank’s NPLs.
However, the state was forced to pay €3.5 bln to shore up the balance sheet sold to Hellenic, of which €3.2 bln was in bonds. This was done to calm customer nerve after several runs by panicked depositors at Co-op branches prior to the sale.
“The Finance Minister very early had repeatedly, and sometimes strict, warnings both by the Cypriot regulator but mainly by the European regulators on the CCB’s very poor and weak corporate governance. However, he did nothing,” the report said.
The Committee also laid blame at the door of President Nicos Anastasiades for not removing Georgiades from his post.
“If the President bears some responsibility for what led to the expedited sale of a part of the CCB to Hellenic Bank it is because he kept to the Finance Minister in his position, a person which for a period of more than four years, did not manage to lead the Co-op away from its destructive course.”
The Committee also apportions blame to Co-op’s General Director, Nicholas Hadjiyiannis who had “huge responsibility”.
“Despite repeated calls by the supervisory authorities, both by the Central Bank and the SSM, on above issues (reducing NPLs and slashing operating expenditure) the General Director was negligent and showed incompetence in tackling them.”
The inquiry team suggests that Hadjiyiannis should be subject to civil and criminal inquiry concerning a possible breach of contract and the deal with Asset Manager Altamira concerning the management of the C0-op’s €7 bln NPL portfolio.
The report also suggests that Yiannos Stavrinides should also be subject of investigations concerning advertisement contracts.
It was also alleged that Hadjiyiannis and Stavrinides were only appointed to key positions at the bank because they were personal friends of the finance minister, which is why Georgiades found it hard to sack them for their mismanagement.
In his defence, Georgiades said the government did what had to be done at a bank suffering from long-term toxic issues and the tough decisions made brought stability to the banking sector and the economy.
He said there was a difference between political responsibility and acting responsibly.
“In the case of the Co-op bank we were called on to manage a chronically toxic situation…Some people may have a different view. Some people may have wanted this situation maintained.”
Georgiades said he would need to study the report before commenting further.
