Regulator fines Bank of Cyprus for non-disclosure on Greek debt

NICOSIA Fri Oct 4, 2013 8:48am EDT

A worker paints a wall above a branch of Bank of Cyprus in Bucharest April 1, 2013. REUTERS/Bogdan Cristel

A worker paints a wall above a branch of Bank of Cyprus in Bucharest April 1, 2013.

Credit: Reuters/Bogdan Cristel

NICOSIA (Reuters) - Cypriot financial regulators have fined Bank of Cyprus BOC.CY and six of its former executives for failing to give shareholders information on the lender's Greek government bond holdings, which almost bankrupted it.

Large depositors were forced to recapitalize the bank this year after it reported massive losses on its Greek bonds. The process, known as a "bail-in" was conditional to the east Mediterranean island reaching agreement with international lenders in March for 10 billion euros ($13.6 billion) in aid.

Cyprus's Securities and Exchange Commission (SEC) said Bank of Cyprus's former management failed to provide shareholders with timely information on their purchases of Greek government bonds dating back to 2010.

Investors, the regulator said, were left with the impression that the Cypriot bank had disposed of most of its Greek government bond holdings after public comments to that effect by its chief executive in December 2009.

But in the months that followed, Bank of Cyprus accumulated Greek bonds worth up to 2.4 billion euros, almost matching the lender's equity capital of 2.5 billion euros, the SEC said.

The "least investors could have expected" was disclosure from the bank about its holdings, taking into account they were considered non-investment grade by ratings agency Standard and Poor's, it said.

Bank of Cyprus lost 1.9 billion euros on its Greek bond holdings, largely through an EU-approved restructuring of Greek sovereign paper to make that country's debt burden more manageable.

Combined with losses of its then-peer Laiki Bank, exposure to Greece was instrumental in triggering a financial crisis in Cyprus and forcing the island to seek international aid from the European Union and International Monetary Fund. Laiki was shut down in the bailout.

The SEC said it had fined Bank of Cyprus 160,000 euros; former CEO Andreas Eliades 140,000 euros; former deputy and compliance officer Yiannis Kypri 120,000 euros; and four members of its Asset Liability Committee 10,000 euros each.

($1 = 0.7340 euros)

(Reporting By Michele Kambas; Editing by Pravin Char)

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Comments (2)
Marus_goris wrote:
Why, would the Bank of Cyprus re-invest and purchase non-investment grade bonds in Greece. That is a terrible mistake. I hope they enforce investment and regulatory rules and implement new rules to avoid a nations banks to make investment decisions with extremely high risk, it was almost guaranteed to loose on the investment.

Oct 04, 2013 9:42am EDT  --  Report as abuse
dareconomics wrote:
The last country to impose “temporary” capital controls before Cyprus was Iceland, and they are still in place five years later. Despite Cypriot capital controls, deposits are still fleeing the country. Meanwhile, regulators have fined Bank of Cyprus and its top officials a total of €460k for losing almost €2bn on nondisclosed holdings of Greek government bonds. While this amounts to a slap on the wrist, it is one more slap on the wrist that American executive received after the subprime crisis.

Full post with charts, images and links:

Oct 04, 2013 2:41pm EDT  --  Report as abuse
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