Survival of the Brokest in Cyprus Bailout

Just when it looked like the banking crisis in Cyprus couldn't get any weirder, here's another odd twist: The broke are buying the broke.

Just when it looked like the banking crisis in Cyprus couldn't get any weirder, here's another odd twist: The broke are buying the brokest.

Last week Athens-based Piraeus Bank SA said it would pay 524 million euros ($673 million) to buy the Greek branches of Bank of Cyprus Pcl, Cyprus Popular Bank Pcl and Hellenic Bank Pcl, including all of their loans and deposits. Two days later, Piraeus released its own financial results, which showed the company had a shareholder deficit of 2.3 billion euros.

Note that I said deficit -- not equity. Piraeus said it had 72.7 billion euros of liabilities as of Dec. 31, compared with 70.4 billion euros of assets. But why let something like a huge hole in the balance sheet stop a big Greek bank from proceeding with a new acquisition spree?

Piraeus said it will pay for the purchase by issuing new shares to the Hellenic Financial Stability Fund, a bailout kitty that the European Commission set up for Greece's banking system in 2010. Piraeus will receive 7.9 billion euros of "capital advances" from the fund, according to a March 28 presentation on the bank's website. It's a bailout to fund a bailout, and then some.

Many bank customers in Cyprus itself weren't so fortunate, of course. Uninsured depositors at Bank of Cyprus face 40 percent losses or more as part of the country's rescue terms. The outlook is much worse at Cyprus Popular, which is being shut down.

Greece may be luckier than its people realize.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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    Jonathan Weil at jweil16@bloomberg.net

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