UPDATE 1-Cyprus bails out Popular Bank with 1.8 bln euros share buy

Mon Jul 2, 2012 6:14am EDT

Related Topics

* Cyprus govt steps in to recap second-largest lender

* Island requested EU bailout last week

* Troika start assessing Cyprus needs Tuesday (Releads, adds detail)

By Michele Kambas

NICOSIA, July 2 (Reuters) - Cyprus, which applied for an EU bailout last week, acquired 1.79 billion euros ($2.3 billion) worth of shares in the island's second-largest lender, in a previously announced move to help it meet minimum capital levels depleted by heavy exposure to debt-crippled Greece.

The finance ministry said on Monday it had bought the shares in Cyprus Popular Bank, after the state pledged on May 17 to underwrite Popular's attempt to raise 1.8 billion euros in equity.

Cyprus, which assumed the rotating EU presidency on July 1, became the fifth euro zone member to seek a financial lifeline from its European partners last week.

A team from the European Commission, the IMF and the European Central Bank were expected to start consultations with authorities on Tuesday.

Cyprus's banking system has been heavily exposed to Greece, with Popular and Bank of Cyprus posting mammoth losses on writedowns of Greek sovereign paper, agreed by European leaders to make Greece's debt pile more manageable.

The cost to bail out both banks, at about 2.3 billion euros, represents a sizeable chunk of Cyprus's 17.3 billion euro economy and one the island can ill afford while it is shut out of international debt markets.

Private demand for shares in Popular Bank's rights issue was minimal and the bank said it had received applications for just 3.013 million euros worth of stock.

Three days before the expiry of a European Banking Authority deadline for bank recapitalisation to meet capital strength benchmarks, Bank of Cyprus also asked for 500 million euros in temporary state support. That bid would be discussed in the context of the bailout.

"Banks' capital needs will be assessed after a thorough examination of their assets and in respect of EU state aid rules," the finance ministry said. ($1 = 0.7880 euros) (Editing by Jon Loades-Carter and David Holmes)

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