Our View: Decision shows banks alone can’t be blamed for collapse

Four of the five former members of the Bank of Cyprus top brass who were facing criminal charges for market manipulation, concealing the capital requirements of the bank at an AGM and of misleading shareholders at the same AGM, were cleared on Thursday. The court found the bank’s former CEO Andreas Eliades as well as the bank guilty of one of the charges – misinforming the shareholders at the AGM of the bank’s capital needs.

This was the first case brought as part of the politicians’ pledge to punish the people responsible for the collapse of the economy. There are two more cases currently in the courts – in one Laiki Bank officials face charges regarding market manipulation while the other relates to the Bank of Cyprus. How much longer they would last is unknown because these are complex cases involving many defendants, each with his own attorney. The first trial, which still has not heard the pleas for mitigation, had 105 days of hearings, stretching over three years and involving 30 prosecution witnesses; the court ruling was 236 pages.

After Thursday’s ruling, there will not be many people expecting that the politicians’ promise would be kept. Newspapers, which had campaigned as vigorously as the politicians for the punishment of ‘guilty parties’, expressed their disappointment in their reports about the ruling. “The notorious administration of justice regarding the responsibilities for the economic catastrophe is becoming remoter,” reported Politis and added: “Four whole years later, the announced and costly investigation for the prosecution of the guilty is yielding no results.” Phileleftheros wrote: “The conclusion of the first big trial regarding the collapse of the economy does not respond to the inordinate expectations created.”

These inordinate expectations, it has to be said, were created by the politicians and the newspapers and the reason the costly investigations were yielding no results was because it is an impossible task to pin the collapse of an economy on five, 10 or 20 individuals and prove criminal responsibility. Aware of the impossibility of the task, attorney-general Costas Clerides decided to focus on a specific issue in the belief there were adequate grounds for the successful prosecution of a group of bankers. Nobody could claim that the misleading of the Bank of Cyprus AGM in June 2012 had anything to do with the collapse of the economy. It certainly did not cause it.

In May of that year the legislature had voted for a cash injection of €1.8 billion into Laiki which was insolvent, while in June the Christofias government, which lost access to the markets in 2011, had asked for economic assistance from the EU. The economy was heading for collapse long before the bankers misled the AGM about the bank’s capital needs, but Clerides, under pressure from the government, had to satisfy society’s demand to punish some who could be linked to the collapse. Millions were spent on the investigations that have been in progress for four years and a few individuals might eventually be put behind bars for specific crimes, but not for the collapse of the economy.

The truth is that far too many people contributed to the collapse. That the bankers showed recklessly poor judgment in their business decisions there is no doubt. They allowed the banks to become too big for the size of the economy by piling up deposits and lent money indiscriminately causing a huge property bubble that was certain to burst. They also invested billions in Greek bonds at a time when no prudent banker would have taken such a suicidal gamble. These were colossally poor business decisions but were they criminal offences? The late Andreas Vgenopoulos may have driven Laiki to bankruptcy but while he was doing this he was receiving lavishly positive write-ups in the press which now want to punish those responsible for the collapse. And what was the Governor of the Central Bank, the supervisory authority, doing while the bankers were mismanaging the banks and taking massive risks with their depositors’ money? He performed his duties appallingly – he even allowed the Bank of Cyprus to expand in Russia – but had he committed a crime?

And what was the role of the politicians in the collapse? The then president Demetris Christofias bankrupted the state with his profligate welfare spending that none of the parties opposed until it was too late. He borrowed €2.5 billion from Russia in 2011 to avoid taking the tough decisions that were desperately needed to save the economy and was applauded by the rest of the parties; his incompetence also led to the blowing up of the main power station, costing the state a billion. In 2012 he requested assistance but for six months refused to sign an assistance programme, allowing the situation to get worse. And the politicians that pandered to the bankers that funded their parties that stood by and watched Christofias throw away the taxpayer’s money without a word of protest had no responsibility for the collapse? And the media with their big bank advertising budgets?

Punishing those responsible for the collapse of the economy would be welcome but it is fantasy, which the politicians promote to deflect attention away from their own responsibilities. They have succeeded in this regard as they have imposed the view that only the bankers were to blame but the court decision spoiled the narrative.

I am afraid that you fail to take account of professional negligence and dereliction of duty/statutory duty, as did Costas Clerides in choosing his line of attack. Some private prosecutions might be in order. You make no mention at all of Katastrofias complete failure to understand the implications of and therefore not to veto the EU plan for a Greek Bond Haircut, which would have helped avoid the catastrophe arising from “The Russian Deposit Game” and the need to earn high returns from so called safe investments, like Greek Bonds which were as good as Bunds, for a while at least, in the minds of idiots. As I remember Stavrakis though it was a good game when he addressed the CIIM in October 2008. We should not forget that Russians continue to have a disproportionately high volume of deposits and transactions in our Banks, as well as being, in some cases, material shareholders, which opens up the way for a Ukrainian style rescue, if we do not get some kind of just result from pursuing the guilty / thought to be guilty. You can pretend for so long and fool the Cypriot People, but Russians may not be so easily fooled or inactive

Michael John

Greek Cypriots go around with their eyes closed the corruption on this Island is bad One Day the Sh*t will hit the fan so hard many people will be covered in it big style .

KAITANOU

i am no lawyer but is incompetence/negligence chargeable or not. It would be helpful if a TV a program looked at this in depth..However it would require competence on the part of the journalists as well as other conributors to such an investigation.

Copernicus

You are asking too much from journalists to be competent in matters which even the lawyers and bankers in Cyprus did not understand. Buying Greek bonds in the midst of a Greek recession and on the verge of bankruptcy was not zero risk and yet this is what some alleged! If this is not criminal negligence I do not know what is? Question is whether the law can punish in Cyprus for criminal negligence and only a good lawyer can explain this. Any volunteers?

Pc

It was zero-risk to buy Greek bonds in a world where banks are always bailed out and European governments will not default. But there were enough precedents at the time that showed that especially the northern EU states were no longer willing to go down that path.

Copernicus

It was only zero risk for capital adequacy purposes but not for credit risk; they had too much credit risk in Greece and should never have been allowed. Has nothing to do with the northern EU states

Pc

Incompetence is not chargeable.

Pc

DISY did oppose the spending plans of the AKEL government. You can see that the voting record reflects that every year it voted against the budget.

Philippos

Yes, Nik knew what was going on and it’s implications. He got a real punch in the mouth at his first Leaders Summit when Merkel told him,”If you do not agree to our terms now, you won’t have a Banking System at all in Cyprus, by the time you get home” Sadly all DI.SY’s kind of better insight came to nought…and Katastrofias is still a free man with pensions, cars etc etc. Telika, Nik is to be congratulated on the achievements following this crisis, but that is not to say that all is now wonderful in this case and many others within the scope of Presidential responsibilities.

Copernicus

The root of the problem was the size of the banking system and the non existent governance and risk management at the two large banks in Cyprus. Their uncontrolled expansion in Greece (remember the split of the BoC shares and the listing on the Greek stock exchange which was a boomerang) resulted in €25 billion of loans in Greece. In fact the hubris shown about bankers international expansion (Russia, Ukraine, Romania, Serbia, Malta…..) led to one blunder after another. In 2010/11 the EU Commission and the rating agencies were telling the Cyprus government that due to the banks’ very large exposure to Greece (add another €6-7 billion o bonds bought) meant that Cyprus could not support its banks if it needed to do so. The folly of the EU, and the Cypriot bankers, was to believe that the hair cut of Greek debt was to be 19%, the basis of the first stress tests. The rest is history as the hair cut of Greek bonds was closer to 80% and the Cypriot government did not get any support for its banks thanks to the incompetence of Christofias and his unwillingness to listen to his Minister and Central banker. The regulators and the politicians are also to blame for inaction but who would want to spoil the party; it came when the Eurogroup switched off the lights and told the party it was all over.

Disenchanted

The bankers are getting away on technicalities and legal loopholes over charges that have little to do with the real causes of the crisis. Misleading markets isn’t what caused the crisis. That came very late in the day when they were still trying to pretend their bank was healthy. In any case one of them, Eliades, as well as BOC itself, were found guilty, although not the rest. Eliades was the mastermind and the fact that the rest of them failed to control him doesn’t necessarily make them guilty of a crime.

What caused the crisis are all the bad investments the bankers made that led to massive losses. No one else is responsible for those other then the banks themselves. But even losses of billions aren’t necessarily the result of fraud. It can just be bankers taking too much risk because of poor judgement. Even if there is suspicion of fraud e.g. when they bought the bank in Russia, or when it comes to soft loans to developers, it’s not straightforward to prove in a court of law.

The demand to punish the culprits is understandable but that needs to be balanced against the fundamental principles of justice, which safeguard democracy. Revenge isn’t one of them.

Neroli

And where was the Central Bank in all this??

Pc

And the Ministry of Finance? And the President’s cabinet?

Neroli

I agree with you, but isn’t it part of a central banks position to oversee the banks?

Pc

Until 2014, the CBC only oversaw the regular banks, not the COOPs. So, 30% of the banking sector fell directly under the supervision of the MoF. Also, who appoints the CBC governor? And the president didn’t exactly appoint the best choice with Panicos, nor did he give him the mandate to sort out the banking sector (in fact, the mission was to keep the banks afloat until after the 2013 presidential election).

And then we haven’t even addressed that Christofias was doing Vgenopoulos’ bidding in 2009 by putting pressure on the CBC to soften the CBC supervision over Laiki.

Neroli

I know the Co Ops are under the supervision of the CBC NOW!! But all this was happening with Orfanides as Gov!

Disenchanted

The president and the ministry of finance had no responsibility over the banks at all. That responsibility belonged to the central bank, which is independent of government but accountable to parliament.

Neroli

Correct!

Disenchanted

The regulatory framework was lax by choice, that’s what the country wanted. It was a merry go round. But even within that Orphanides could have done more to reign in some of the most dubious investments, e.g. he could have stopped the acquisition of Uniastrum which resulted in losses of 1.5 billion euros, nearly as much as the losses from the Greek debt restructuring. He had every right to do that. For other ‘investments’, like the GGBs, it was easier said than done. He actually asked them to raise more capital and that’s when the banks decided to sell cocos to depositors…

Copernicus

The CBC was asleep on the job thanks to Orphanides light touch regulation. He bears most of the responsibility as the credit expansion, the purchase of Greek bonds and the international expansion into dubious countries were on his watch. He left behind two banks which were badly governed and with hardly any proper risk management in place. As a regulator these should have been his primary responsibility!

almostbroke

All smoke and mirrors to cover up the ‘clusterf#%k ‘ by the fat toad and his voodo economics . What other country would ‘reward ‘ a man who ruined it economically, indirectly caused the deaths of people , was bordering on treason ,failed to pay his debts , with a fat pension , several police bodyguards , and a Place at the top table at the farcical National Council meetings , something not right here .

alexander reutersward

they are guilty, but they have used every loophole possible in order to be legally not guilty.

Evergreen

True.

Samting

Here we go again. laws protects the guilty before justice is given to the victims – they just can’t get it right, can they?

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