By Angelos Anastasiou
SIGNIFICANT pending issues in June 2012 did not justify issuing a profit warning, but the matter should have been put to the board for a decision, as was done, former head of the Bank of Cyprus’ financial planning department Eliza Livadiotou told the court on Friday.
Livadiotou took the witness stand in the trial of the Bank of Cyprus and five of its former top officials, who are facing charges of conspiracy to withhold information from investors regarding the lender’s capital needs in mid-2012.
“Personally, I believe that on June 14, 2012, there remained issues pending that did not justify the issuance of a profit warning, but the issue should have been put to the board for discussion, which I believe is what happened, after [financial director Christis] Hadjimitsis’ presentation,” she said.
She was responding to a line of questioning that sought to demonstrate whether the board should have informed the public that the bank’s capital shortfall was likely to be more than double the €200m it had announced three months earlier – in July 2012, the bank announced having requested a €500m bailout.
Livadiotou said she and Hadjimitsis had discussed finalising his presentation to the board on the morning of June 14.
“We were troubled with regard to the amounts and the way they should be presented,” she said.
Asked whether the two had discussed whether the public should have been informed, Livadiotou said their discussion revolved around the fact that some risks started to emerge – Greek sovereign debt held by the bank and write-downs – and that, should these take a turn for the worse the issue should have been discussed.
But, she added, “we didn’t have the full picture”.
With regard to e-mail communication with the bank’s auditors, Ernst & Young (EY), the witness said she got an email from EY’s managing partner Andreas Demetriou, in which he informed her for the first time that the firm had ruled that there had been an “active market” for Greek bonds.
She added that Demetriou’s initial e-mail on this point, on June 9, 2012, had surprised her, because she had not been aware of the ongoing debate on whether there was an active market for Greek bonds or not.
Livadiotou acknowledged that accurately appraising the value of the bonds held was a difficult undertaking.
“It was a first for all of us,” she said.
“There was no self-evident, clear method of calculating it. It was something that was discussed endlessly.”
She agreed that the eventual ‘haircut’ of Greek sovereign debt – or private-sector involvement (PSI) – was an unprecedented move that spilled over to the Bank of Cyprus’ operations in Greece.
“The bank operated 188 branches in Greece at the time,” Livadiotou said.
“Prior to 2013, almost a third of our balance sheet was in Greece.”
