Update 21 April 2013 (see end blog)
Simon Cox The Bank that brought down Cyprus BBC World Service 'Assignment' aired 4 April 2013.
In this very useful piece Simon Cox traces the downfall of Laiki Bank to its takeover by the Greek company, Marfin Investment Group, in 2006. His programme argues that the bank's culture and practices changed from this time from a rather conservative retail bank to an 'investment bank mentality' as an un-named very senior executive puts it.
And although denied by the ex-Chief Executive of Laiki Bank, Efthimios Bouloutas, the same executive claims that the Cyprus 'side' of the bank (Cyprus became the bank's base in 2006) did not have information about the bank's total exposure to Greek coporate loans (outwith its exposure to GreekGBs) until 2011,
This only came to the surface in 2011 when all the credit committees were merged. So we looked into the loans and realised what was going on and said, 'What is this?' We had lots of arguments about it.
Asked by Cox about a €700m loan to a shipping company the same un-named executive says,
This was the biggest disaster. I think we lost €350m on that. But there were others for example. One of the TV channels in Greece had a loan of half a billion Euros.
This executive admits that mistakes were made but blames the downfall of the bank equally between the bank, politics and the Troika.
Cox then interviews by telephone Efthimios Bouloutas, Marfin Chief Executive and ex-chief executive of Laiki Bank. In the interview Bouloutas denies the assertion made by the executive above regarding the lack of knowledge held by Cyprus's 'side' of the bank with regard to the loan situation in Greece until 2011. He also says it is incorrect that Laiki was making loans in Greece with little collateral cover.
Asked about €400m of loans made to directors in 2011 Bouloutas says that these had accumulated over time and were not made in one year. He defends the loans by saying that they were all published and that they all had been approved by the Board of Directors.
Outside of the interview Cox says that financial documents he has seen 'clearly state that the Board of Directors and their connected people took loans of €400m' in 2011.
He finally asks Bouloutas about the €9bn of ELA loans that Laiki had. Bouloutas replies, 'In my view the political decision to [??? 20.40 mins into interview] Laiki is what led to the situation that you have currently.'
There is a crucial word here that I cannot make out.
Earlier in the interview Bouloutas refers to the European banking authority's stress tests of mid-2011 which were passed with 'flying colours' by Laiki and which were in his words, 'these were sole [ly?] indicators of the robustness of the Cyprus banking system.'
Earlier in the programme Cox speaks to an employee of the bank who reveals that Laiki encouraged employees to take loans - some as a big as €60-70,000 - to buy Laiki shares. (The 60-70k figure is not in the Assignment piece but it is in the interview with the same woman in the lead to the broadcast in BBC WS World Business Report 3rd April 2013).
The employee tells Cox that she has both a mortgage with Laiki and outstanding loans. She used some of these loans to buy Laiki shares,
After directors of the bank over the years telling employees it would be nice, you know, if they could get a loan to buy shares in the bank and support in that way their employer; the bank that feeds them; that gives them bread every day.
And in another instance a director called us and put us in a small conference room telling us it would not look good on our resume if we sold those shares. So most people didn't sell their shares. In the meantime afterwards we found out that all the directors had sold theirs [even the director who had told them to hang onto them]. That person sold all his shares and even left the bank.
In the programme Cox also interviews Andreas Neocleous, founder and managing partner of Andreas Neocleous & Co LLC, Cyprus's largest law firm (see Wikipedia: Andreas Neocleous and Andreas Neocleous & Co). In the interview he says that his firm has lost 'a little bit more than €20m' through its deposits in Laiki Bank and the Bank of Cyprus.
For more on Laiki Bank see The Banks.
For a partial transcript of the Simon Cox programme see BBC News Magazine 5th April 2013.
For more on the Laiki Director loans see Cyprus Debt who have translated an article into English from SigmaLivecom.
For details of Director salaries at Laiki see the Annual Financial Statement 2011 where it is recorded that the CEO Efthimios Bouloutas received a financial package of €1,543,000 on his resignation in December 2011.
Of this sum an amount of €941,000 (€689,000 net of tax) was 'paid in accordance with the provisions of Greek Labour Law'.
His salary and other short-term benefits as Chief Executive was €1,083,000 gross in 2011 p.122.
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