29/05/2013 10:05
The secret document of the Central Bank of Cyprus, which registers in detail the course of the 16-day negotiations that sealed the future of the banks in Greece, brings on the surface the unbearable pressures on the Cypriot government by the Eurogroup and the European Commission for the exit of the Cypriot banks from Greece.
The document was handed to Chairman of the House Institution Committee, Panicos Demetriades yesterday, after talks on the profits of €3.4 billion announced by Piraeus Bank in relation to the acquisition of the branches of the Cypriot banks in Greece.
The document stems from the resolution authority of the Central Bank and is dated March 26, the day that the sale of the activities of the two major banks in Greece was determined with a decree.
It is revealed that - at a technocratic level - negotiations had reached a standstill, as Piraeus Bank asked recalculation of the predictions made by Pimco and right to exit from the agreement.
Ultimately, a shortest price of £450 million was paid, with a political decision with which the Cypriot side reportedly consented.
The note stated that the sale was a condition for the approval of the financial assistance package to Cyprus and several meeting were held in Athens between officers of CB, the FINMIN and the troika on the one and the Bank of Greece on the other.
Due to the large gap in the valuation of loan portfolios, it was not possible for both sides to reach an agreement and the Directorate General for Competition of the EU prepared a draft with the basic terms of the sale.
On the evening of March 12, the teleconference at a Euro Working Group level came to a dead end and it was decided that discussion would continue in Brussels as part of the Eurogroup of March 15.
The Eurogroup meeting agreed three terms.
First, the valuation of the loan portfolio based on the extreme scenario of Pimco but taking into account the anticipated profitability before provisions estimated by Pimco.
Second, the capital required to be paid at 50% from the buyer and 50% from the seller.
They also agreed to make a confirmatory test for the loans to be sold and a recalculation of the provisions by Pimco taking into account the deterioration of the macroeconomic environment and an estimate of the restructuring costs of stores.
"From the audit, an additional reduction in selling price may emerge, which may not exceed €350 million”.
As highlighted in the note of the CB resolution unit, in the run up of the Eurogroup on March 25, 2013, after interventions by the President of the Republic, Prime Minister of Greece and Mr. Almunia, the terms were amended and the required capital was agreed to be paid by 2/3 from the buyer and 1/3 from the seller.
They also removed the provision for the recalculation of the forecast from Pimco and the purchaser will not be entitled to cancel the agreement.
“This amendment came about because of the insistence of Piraeus Bank to include a term in the contract giving it the right to cancel the agreement if the amount exceeds €350 million, something that the Cypriot side was strongly against," Mr. Demetriades says in his letter.
It also underlines that if the sale did not take place, the losses for banks would be much higher since no restrictive measures could be imposed to withdraw deposits from Greek branches and there would be a massive withdrawal of deposits that would result to the inability of banks to respond.
The amount of insured deposits in Greek branches was estimated at €9 billion.
Regarding the announcement of the Piraeus Bank for profits of €3.4 billion from the difference between the fair value as this was determined and the purchase price of loans of the Greek branches of the Cypriot banks, Mr. Demetriades indicated that it is unrealized profit. The basis for calculating the amount has not been disclosed by Piraeus Bank and this amount is expected to be gradually reversed by incurring bad debt provisions in relation to these advances.
The troika appears to have taken into account the huge profits and the way they were calculated.
The document was handed to Chairman of the House Institution Committee, Panicos Demetriades yesterday, after talks on the profits of €3.4 billion announced by Piraeus Bank in relation to the acquisition of the branches of the Cypriot banks in Greece.
The document stems from the resolution authority of the Central Bank and is dated March 26, the day that the sale of the activities of the two major banks in Greece was determined with a decree.
It is revealed that - at a technocratic level - negotiations had reached a standstill, as Piraeus Bank asked recalculation of the predictions made by Pimco and right to exit from the agreement.
Ultimately, a shortest price of £450 million was paid, with a political decision with which the Cypriot side reportedly consented.
The note stated that the sale was a condition for the approval of the financial assistance package to Cyprus and several meeting were held in Athens between officers of CB, the FINMIN and the troika on the one and the Bank of Greece on the other.
Due to the large gap in the valuation of loan portfolios, it was not possible for both sides to reach an agreement and the Directorate General for Competition of the EU prepared a draft with the basic terms of the sale.
On the evening of March 12, the teleconference at a Euro Working Group level came to a dead end and it was decided that discussion would continue in Brussels as part of the Eurogroup of March 15.
The Eurogroup meeting agreed three terms.
First, the valuation of the loan portfolio based on the extreme scenario of Pimco but taking into account the anticipated profitability before provisions estimated by Pimco.
Second, the capital required to be paid at 50% from the buyer and 50% from the seller.
They also agreed to make a confirmatory test for the loans to be sold and a recalculation of the provisions by Pimco taking into account the deterioration of the macroeconomic environment and an estimate of the restructuring costs of stores.
"From the audit, an additional reduction in selling price may emerge, which may not exceed €350 million”.
As highlighted in the note of the CB resolution unit, in the run up of the Eurogroup on March 25, 2013, after interventions by the President of the Republic, Prime Minister of Greece and Mr. Almunia, the terms were amended and the required capital was agreed to be paid by 2/3 from the buyer and 1/3 from the seller.
They also removed the provision for the recalculation of the forecast from Pimco and the purchaser will not be entitled to cancel the agreement.
“This amendment came about because of the insistence of Piraeus Bank to include a term in the contract giving it the right to cancel the agreement if the amount exceeds €350 million, something that the Cypriot side was strongly against," Mr. Demetriades says in his letter.
It also underlines that if the sale did not take place, the losses for banks would be much higher since no restrictive measures could be imposed to withdraw deposits from Greek branches and there would be a massive withdrawal of deposits that would result to the inability of banks to respond.
The amount of insured deposits in Greek branches was estimated at €9 billion.
Regarding the announcement of the Piraeus Bank for profits of €3.4 billion from the difference between the fair value as this was determined and the purchase price of loans of the Greek branches of the Cypriot banks, Mr. Demetriades indicated that it is unrealized profit. The basis for calculating the amount has not been disclosed by Piraeus Bank and this amount is expected to be gradually reversed by incurring bad debt provisions in relation to these advances.
The troika appears to have taken into account the huge profits and the way they were calculated.
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