Thursday, 21 March 2013

Popular Bank Faces Possible Closure

Officials at Popular Bank, the weakest of Cyprus' three largest banks, tell The New Athenian that an announced 'resolution' of the bank is likely to mean closure.

"By 'resolution' I don't understand 'restructuring' or division into a good and a bad bank," said one official on condition of anonymity. "Our information is that all unguaranteed assets of over 100,000 euros will simply be taken to cover nonperforming loans and other liabilities. Essentially, it will destroy the bank."

A former senior official at the bank concurred. "I don't know what resolution means, I haven't heard the details, but I think we shall end up not saving the bank but closing it," he said.

The officials spoke amid a furore of speculation sparked on Thursday evening by Panikos Dimitriadis, the central banker of Cyprus, who announced that the bank would be 'resolved'.

Popular Bank, or Laiki, was the worst affected by a restructuring of Greek bonds in March 2012, writing down three billion euros. It has been dependent on emergency cash from the European Central Bank ever since, borrowing up to nine billion euros according to bankers. But earlier on Thursday the ECB said it would cut emergency liquidity to the bank after Monday, because the bank is insolvent.

That statement has widely been interpreted as designed to put political pressure on the Cypriot government to submit to the terms of a bailout it agreed to on March 16, but failed to pass in parliament three days later.

According to the terms, Cyprus must generate 5.8 billion euros from its own public or private assets in order to receive a 10 billion euro loan from the eurozone. The government originally proposed to raise this through a one-off levy of up to 9.9 percent on all bank deposits. The measure caused an outcry and was defeated in the 59 seat parliament by 36 voters against, none in favour and 19 abstentions from the ruling party.

That led to talk of a 'Plan B' for raising the money. Lawmakers tell The New Athenian that that will consist of a Solidarity Fund consisting of public assets, but inviting private investors to contribute. A possible levy is not ruled out, they say.

"A few days ago we were celebrating avoiding a haircut," the Marfin official said. "But this is much worse. It is one thing to lose 5 - 10 percent of your deposits. It is quite another to lose everything."

Hundreds of the bank's 3,000 employees gathered around parliament after Dimitriadis' announcement and chanted "hands off Popular Bank".

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