'Not me, gov,' and 'Not real profit,' says Central Bank Gov over Piraeus purchase of CYbanks' Greek ops

 Stockwatch publishes 28 May 2013 an unattributed report of CBC Governor, Panicos Demetriades to a (parliamentary?) committee. According to the English-language version of the article (which looks like a Google machine translation) Demetriades states that:


  • The sale of Cypriot bank operations in Greece was the product of political decisions and agreed at political level between Cyprus and Greece within the framework of the two Eurogroup Finance Ministers meetings of March 2013;
  • That the profits of €3.4 billion of Piraeus Bank from the acquisition of Cypriot banks are 'accounting and unrealized';
  • That the so-called accounting profits of Piraeus Bank are expected to be gradually reversed through increased provisions for rising non-performing loans;
  • That the CBC's role was limited to negotiations with representatives of Piraeus Bank between 23 and 26 March 2013 which did not include the price and terms of sale;
  • That Demetriades concluded, 'I remind that, in addition to the branches in Greece, we were forced to take similar measures for the Bank of Cyprus branch in Romania and the Cyprus Popular Bank branch in the United Kingdom”,

In effect, the Governor here seems to be saying, 'Not me Gov'.


The sale of the Cypriot banks' Greek operations was political and the price and terms of sale were agreed far away from Central Bank of Cyprus. Its role was merely to tie up loose ends in the contract and when the banks concerned refused, sign it for them.


This was done under the powers granted in the new bank resolution law hurried through the Cypriot parliament between the two Eurogroup meetings in March 2013.


With regard to the €3.4bn profit recorded in Piraeus Bank's Q1 2013 accounts following the adjustment of the asset values of the purchased operations this was an 'accounting' and 'unrealised' profit. In other words it was not in some way 'real'.


And even if in some way it was 'real' it would soon be eroded away, 'through increased provisions of rising non-performing loans.'


We have to presume here (because it is not spelt out) that Demetriades was referring to the increasing provisions of NPLs arising from the loans taken over by Piraeus Bank from the Cypriot banks.


My examination of Piraeus Bank's Q1 accounts at  Another day, another 3.4 billion euros suggests that precisely the opposite is happening.


When the bank bought the Cypriot banks' operations bad loan provisioning was €7.7bn. Within a few days, this figure had fallen to what looked like an equivalent of €5.2bn, wiping €2.5bn off the provisioning.


Now I could be wrong here because the provisioning figure could include adjustments for other loans provisions.


(See the Piraeus Q1 spreadsheet downloadable at Another day, another 3.4 billion euros and the 'Cumulative Provisions' line in 'Assets' that rises from €5.961bn (31/12/2012) to €11.182bn (31/03/2013) by a total of €5.221bn compared to the Piraeus Bank table released just after the purchase in same blog entry.)


A last point, with regard to the fate of other overseas operations of the Cypriot commercial banks: it is not the case that these were all sold off as Demetriades seems to apply (via the machine translation).


Here is what happened in the UK.


THE UK's new financial regulator, the Prudential Regulation Authority, (a unit of the Bank of England) decided that Laiki bank depositors in the UK would be covered by the UK's deposit protection scheme.  This was justified on the grounds that Laiki UK banking operations are being rolled into the UK operations of the Bank of Cyprus.  Laiki depositors with more than €100,000 on deposit in UK branches were not be subject to a haircut (see Reuters Jones 2 April 2013).


This protection was afforded even though Laiki's UK operations were run as a Cyprus-based branch operation (rather than as a UK-based subsidiary) and were not covered by the UK deposit protection scheme (see FT Jenkins 2 April 2013).  Laiki's UK  deposits were valued at £270m (Daily Telegraph 2 April 2013).


The UK operations of Bank of Cyprus had 50,000 customers with deposits of £920m - largely in tax-efficient individual savings accounts - in June 2012 when it joined the UK's deposit guarantee scheme.


It had been offering one of the best interest rates - at 4 per cent - on the market to attract depositors.


UK Bank of Cyprus depositors did not suffer a haircut on deposits over €100,000 (£85,000) (FT Moore 6 and 8 June 2012).


The Bank of Cyprus UK operations were not sold off at the time of the bailout and the rolled-into-one UK operations of Laiki Bank and the Bank of Cyprus are still part of the Bank of Cyprus Group.


(For details on Laiki and Bank of Cyprus see my The Banks and for more on the Piraeus purchase see updated blog entry Another day, another 3.4 billion euros


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