Bank run at Co-op as MPs squabble

DEPOSITORS GET THE JITTERS, WITHDRAW EUR 70 MLN IN A DAY

As MPs traded barbs over the demise of the Cooperative Bank on Friday, nervous customers were rushing to withdraw their savings in a mini-bank run.

According to CAN, hundreds of Co-op clients withdrew some EUR 70 mln in deposits in a matter of hours by Friday noon.

There was a similar bank run on the Co-op earlier this year which saw the troubled credit institution bleed some EUR 2 bln in cash over fears of a haircut on deposits. Those same jitters returned on Friday.

Money was flowing out of the island’s second largest bank as MPs were discussing a deal to break-up the Co-op and sell its good assets to Hellenic Bank.

The acrimonious House debate on the Co-op vote rumble on next week.

Main opposition party AKEL accused the government of handling the sell-off in a criminal manner, centre-right DIKO and socialists EDEK demanded that people politically responsible for the demise of the Co-op, be held accountable and resign.

DIKO leader, Nicolas Papadopoulos accused the government of blackmailing the legislative body in voting for the break-up, adding that the issue is primarily a political one. He said that “ordinary taxpayers will be called on to pay the price, as usual, which comes to EUR 5.3 bln”.

AKEL leader Andros Kyprianou, told state radio: “the government has taken a criminal decision against the best interest of the Cypriot economy and society”.

He argued that the downfall of the Co-op was a result of mismanagement and shortcomings of the Anastasiades’ administration.

The deal sees Hellenic undertaking the management and the responsibility to cover the Co-op Bank’s customer deposits amounting to EUR 9.7 bln.

In return, Hellenic has obligations to assume assets belonging to the Cooperative, consisting of loans, bonds and

will cash, worth EUR 10.3 bln, including non-performing loans of about EUR 0.5 bln. Meanwhile, Co-op assets worth EUR 8.3 bln are to be handed over to the state.

The state has already taken on NPLs worth EUR 7 bln and made a EUR 2.5 bln deposit in April to help reassure customers their money was safe.

On Thursday, the Central Bank of Cyprus (CCB) warned MPs that failing to validate the agreement between the Co-op and Hellenic would be “disastrous” for depositors, essentially implying a bail-in.

“Let me be clear, if the deal is not completed and if all that needs to be done is not done, the alternative solution would be disastrous,” said Yiangos Demetriou, a CBC official.

“Because the only alternative solution would be to put the Co-op under resolution, or if the Single Resolution Mechanism deems that there is no issue of public interest, the Co-op would be placed under liquidation and this, in turn, puts insured deposits at risk,” he added.

The next day the CBC had to act as firefighter by stating that deposits of up to EUR 100,000 per person and per credit institution are guaranteed under the law.

This did little to calm nerves as Cypriots rushed to take their money out.

NPLs

The Cabinet has approved an NPL-related basket of bills in an effort to help to reduce the stock of non-performing loans, complying with the European Commission’s conditions in approving the Hellenic-Co-op deal.

The bills - to be reviewed by the parliamentary finance committee on Monday - aim to clamp down on strategic default and speed up foreclosure procedures, by implementing changes to the existing law regarding repossessions.

The changes to the law on the transfer and mortgage of immovable property provide for electronic auctions of foreclosed properties, the abolition of provisions causing delays, changes in the way notifications from the lender are served and providing the lender access to a mortgaged property for the purpose of evaluating its value.

Changes to the foreclosure law foresee that a mortgage can be fragmented to cover several other lesser loan agreements so that no loans remain unsecured when the collateral becomes property of the buyer of a loan.

More importantly, changes abolish the favourable treatment enjoyed by borrowers whose primary home is worth less than EUR 350,000 when their debt repayment is subsidised with taxpayers’ money, that is when a beneficiary receives state aid in repaying his debt.

Finance Minister Harris Georgiades warned that parliament should not delay passing the bills and should do so before the 13 July summer recess.

Without changes to the law banks are losing millions of euros.

The European Stability Mechanism repeated warnings that: “High NPLs remain a key vulnerability for banks, which suggests the need for a reform in the insolvency and foreclosure framework and poses a risk for the economy going forward”.

Another source of concern is the fact that Cyprus’s public debt, which last year fell to 97.5% of GDP, is expected to rise once again above the 100% mark this year as a direct result of aid granted to the Coop.