It is possible to deduce from these two decrees that the resolution of these two banks will take the following form:
Cyprus Popular Bank Public Co Ltd (hereafter “Laiki Bank”) will be ‘resolved’ immediately with the full contribution of equity shareholders, bond holders and uninsured depositors. Laiki Bank will be split into a good bank and a bad bank. The bad bank will be run down over time while Bank of Cyprus (‘BoC’) will absorb the good bank.
Laiki Bank will transfer to BoC all of its assets, property titles and rights apart from certain exceptions. The exceptions relate mostly to Laiki Bank shares in subsidiary companies outside Cyprus, Laiki Bank assets and rights in the United Kingdom and Greece, and provisions relating to the offsetting of loans owed towards Laiki Bank with deposits held therein.
In return BoC will take on some of Laiki Bank’s obligations, including the 9 billion Euros of Emergency Liquidity Assistance debt that Laiki Bank has accumulated, as well as Laiki Bank’s insured deposits (i.e. deposits of less than €100.000,00 or the first €100.000,00 of greater deposits).
The resolution of BoC will take on a different form. BoC shares will now be subdivided into four categories: A to D, with Class A shareholders having the highest priority and Class D the lowest. Uninsured depositors with BoC will have 37.5% of the uninsured part of their deposits (i.e. amounts above €100.000,00) converted into Class A BoC shares. If a person holds more than one deposit with BoC then these deposits are to be considered in aggregate rather than separately.
If the 37.5% conversion turns out not to be enough in order to secure the 9% capital adequacy that BoC requires then up to a further 22.5% of the uninsured part of BoC deposits may be converted into Class A shares for these purposes. In other words, 60% of the uninsured part of BoC deposits is susceptible to conversion into Class A shares. The remaining 40% of the uninsured part of BoC deposits is for the time being not susceptible to such conversion but 30% of it remains frozen.
If a particular person has a loan with BoC then the amount of the loan is to be deducted from the uninsured part of that particular person’s deposits for the purposes of calculating the above conversion.
The relevant time for the application of the above conversions is the state of a person’s accounts at 22:00 on 26th March 2013.
Debt instruments of BoC are to be converted in Class B shares while bonds convertible into shares that were in the past issued by BoC will be converted into Class C shares. Shares of existing BoC ordinary shareholders will be converted into Class D shares.
In addition to the decrees described above, the Ministry of Finance has on 29th March 2013 issued a second decree pursuant to Law 12(I)/2013 on the Enforcement of Restrictive Measures on Transactions in Case of Emergency as well as a third decree on 2nd April 2013.
The following are among the restrictive measures that currently apply:
In the meantime a revised draft agreement of a Memorandum of Understanding has been reached between Troika and Nicosia. This draft agreement is expected to be adopted in a Eurogroup meeting that will be held in Dublin on the 12th and 13th of April.
Following the conclusion of the draft agreement of a Memorandum of Understanding, Cyprus Minister of Finance Mr. Michael Sarris resigned from his post and was replaced by Mr. Harris Georgiades, former Minister of Labor. As the reason for his resignation Mr. Sarris cited the inquiry that has been set up to attribute responsibilities in relation to the island’s financial deterioration. Mr. Sarris was the previous Chairman of Laiki Bank and his resignation is therefore intended to facilitate the work of the said inquiry.