The House of Representatives, after a lengthy debate, approved early this morning a government bill granting state backing to the recapitalization efforts of the Cyprus Popular Bank, which posted record losses for 2011 due to its heavy exposure to Greek sovereign debt.
The bill and the Ministerial decree provides for the state to act as an underwriter to CPB`s capital raising of 1.8 billion euro through a rights issue. The bill was approved with the abstention of only three MPs of the main opposition party DISY.
House President Yiannakis Omirou described the bill as very crucial, stressing that the people should be given answers and that actions by bankers which lead to the present state should be criticized.
“Our obligation is to scrutinize these responsibilities. There is a financial crime and we should probe into these responsibilities,“ he stressed.
According to the decree, the exercise of the rights was set at 0.10 euro with the rights` share purchase price for the state at 0.10 cents and fair value for the third parties. The state will acquire any non disposed rights by offering the bank one-year zero-interest government bonds which will be renewed automatically at their maturity.
The issue will be offered by priority to the Bank`s existing share holders, to the public with an initial public offering and to a limited number of individuals by private placement.
Furthermore, an independent adviser will submit a restructuring plan to the Central Bank within two months of its appointment. Following the publication of the decree the Finance Minister, in common accord with the Central Bank and the Parliamentary Finance Committee, will appoint up to three members of the CPB Board of Directors, who will have the right to veto all decisions of the Board.
An amendment to the proposed bill reduced the annual income of the Chairman and the members of the Board of Directors, the CEO, the General Managers and their deputies to that of a Ministry Permanent Secretary.
According to the amendments approved, the restructuring plan will included a reduction of the Banks operating expenses with scaled salary cuts amounting to 12.5%.
Furthermore, the reduction in the wage bill in 2012 is expected to reach 10% compared with 2011 and 8% in 2013. Operating expenses should be reduced by 7% in 2012. The salary cuts will primarily affect the administrative executives and the Board members and not the Bank`s low salary earners.
According to a stress test conducted by the European Banking Authority (EBA) last December, the CPB needs to secure a capital buffer of 1.97 billion euro to increase its core Tier 1 capital to 9 percent.