June 15, 2012 / 10:58 AM / in 5 years

Former Marfin boss says Cyprus to blame for crisis

LONDON/NICOSIA (Reuters) - The former chairman of a bank blamed for driving Cyprus towards a possible European Union bailout has accused his critics, including Cypriot officials, of causing the island’s financial crisis.

Then-Chairman of Marfin Investment Group Andreas Vgenopoulos addresses journalists during news a conference in Athens, June 22, 2009. REUTERS/Icon

Andreas Vgenopoulos, former chairman of the Marfin Popular Bank, accused the bank’s new management and the Cypriot central bank of a series of errors which, he said, had forced the bank into an urgent search for nearly 2 billion euros in capital, about a tenth of the island’s gross domestic product.

The bank has now been renamed the Cyprus Popular Bank and was effectively placed under state control after Vgenopoulos left late last year. He said that under his management the bank’s contribution to current problems was actually “negligible, despite what some are arguing.”

In a Reuters special report on June 12 the bank’s new managers said decisions by Vgenopoulos and his executive team had forced the bank to seek nearly 1.8 billion of new capital. As a consequence, the Cyprus government says it may have to seek international aid.

But in a statement, Vgenopoulos said the new management and state officials should take the blame for agreeing to take a voluntary “haircut”, or writedown, on its Greek government bonds. Cypriot authorities should “look more closely at the grounds on which the new management, as well as the Governor of the Central Bank of Cyprus at the time, decided to voluntarily participate in the Private Sector Initiative (PSI),” he said.

The decision “would inevitably lead to the bank’s nationalization,” Vgenopoulos said.

“Why didn’t they fight it? Why didn’t they negotiate with the Greek Government and the competent European authorities?”

A spokesman for Popular Bank in Nicosia declined to comment on Vgenopoulos’s statement, saying the bank was not aware of its contents.

The former governor of Cyprus’s central bank, Athanasios Orphanides, has publicly said he strongly opposed accepting the haircut. He said he was ignored by the island’s president, with whom he had a strained relationship.

Vgenopoulos said the Cypriot economy was “indeed deeply impacted” by Greece because Cypriot banks are owed 22 billion euros in loans in Greece and had, before the restructuring, more than 5 billion euros exposure to Greek government bonds. “This is a system-wide risk, and the problem is not confined to (Popular) Bank,” he said.

The Cypriot parliament and central bank plan separate investigations into the former Marfin bank.

Several senior bankers and politicians in Greece and Cyprus, interviewed for the special report, had said Marfin’s former management was not only to blame for buying so many Greek bonds, but also for a pattern of risky loans, including hundreds of millions used to purchase shares in another company, Marfin Investment Group (MIG), also run by Vgenopoulos. Michael Sarris, a former Cypriot finance minister and the bank’s new chairman, had said: “I think clearly there were many decisions which were in retrospect unwise.” He said there was “too much lending, too much concentration of risk” in Greek government bonds.

Vgenopoulos, who is still the chairman of MIG, said people were “attempting to muddy ... (MIG)’s name.”

“All the relevant regulatory and legal authorities have performed all necessary reviews and enquiries and have definitively concluded that there exist no grounds for any further investigation into any of the stated allegations,” Vgenopoulos said.

He again called for an investigation by an outside firm “to give a true and accurate representation of the country’s banks, similar to the exercise that Greece recently conducted. I have voiced this advice repeatedly but it is falling on deaf ears.”

MIG, he said, remained healthy.

“MIG believes that Greece will remain within the euro zone and that the period of stabilization of its economy is fast approaching. In such a case, when this dramatic cycle of decline reaches an end, MIG is expected to recover its accounting losses and will be able to reward its patient and long-term investors who honor it with their trust.”

Grey reported from London, Kambas from Nicosia; Editing by Matthew Tostevin

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