Bank of Cyprus Boosted Greek Bond Holdings in 2010, Report ShowsCharles Penty
Bank of Cyprus Plc, the island’s biggest bank, became reliant on treasury profits as it built up Greek government bond holdings that sparked losses of 1.9 billion euros ($2.5 billion), a report shows.
Bank of Cyprus started boosting Greek bond holdings from December 2009 to 2.4 billion euros by June 2010, according to a report attributed to financial-industry consulting firm Alvarez & Marsal posted on the website of the Cyprus Mail newspaper. The Nicosia-based lender had previously cut holdings to 100 million euros by December 2009 from 1.8 billion euros at the start of that year, according to the report, which said bank documents didn’t provide a clear reason behind the accumulation of bonds.
Greece has received two bailouts from the euro area and the International Monetary Fund and conducted the world’s biggest sovereign debt restructuring since it triggered the region’s debt crisis in 2009. Private creditors last year agreed to forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek government bonds.
Bank of Cyprus became dependent on treasury profits and bond trading activities that reached almost 30 percent of pretax profits in 2009, with the erosion of profitability caused by bad loans helping explain the decision to accumulate Greek bonds, the report said. Cyprus last month reached agreement with euro-area governments to impose losses on uninsured deposits above 100,000 euros at Bank of Cyprus and Cyprus Popular Bank in return for 10 billion euros of aid.
The Central Bank of Cyprus last year hired New York-based Alvarez & Marsal to examine its own supervision and procedures of banks acquiring Greek bonds. Officials at Alvarez & Marsal in London and New York didn’t immediately comment. Phone calls to spokespeople at the Bank of Cyprus weren’t answered.
The Bank of Cyprus was slow to provide documents, which delayed the investigation, according to the report.
“There is also evidence to demonstrate that during these delays, people within the bank were able to delete data,” according to the report.