Financial Health and the Juicy Plum

14 November 2014

It is now nearly four months since FBME’s Cyprus branch was expropriated under Resolution by the Central Bank of Cyprus. It is worthwhile reminding ourselves of what we mean by the health of the Bank and its conservative financial management.

Below are the ratios of the Cyprus branch of FBME Bank as at 18 July 2014, in a trial balance prepared by audit consultants K Treppides & Co Ltd:

Placements to deposits                               84.15%

Placements and bonds to total deposits  104.44%

Gross loans to deposits                              15.95%

Net loans to deposits                                  10.95%

At the time the Resolution measures were announced, total deposits were USD 1.7 billion. The current liquidity of the Cyprus branch of FBME with correspondent banks is 96%.

What this adds up to is a picture of a Bank that is sound, highly solvent and what might be seen as a juicy plum ripe for picking by someone unable to resist the temptation.

The Central Bank of Cyprus’ action in taking over FBME’s Cyprus branch, using the Republic’s 2013 Law on the Resolution of Credit and Other Institutions, and then offering it for sale was an illicit expropriation and a flagrant abuse of this law.  As excuse, the Central Bank gave a lack of correspondent banking arrangements, which wasn’t true. It also used the cover of the FinCEN notices of Findings and Proposed Rulemaking, in which it was complicit. And it did so after just two workings days from the FinCEN notices being known. Clearly, both FinCEN and the supposed issues with correspondent banks were just pretexts for the Central Bank of Cyprus to seek to sell the branch of a healthy bank.

Some more figures may be useful in understanding the actions of the Central Bank and the Administrator it appointed to run the branch by diktat. Less than a month after his appointment on 22 July, the Administrator attempted to siphon off the liquidities of FBME’s branch and to place them under the sole control of the Central Bank of Cyprus. He did this by instructing three correspondent banks to transfer a total of EUR 187.686 million of FBME Bank deposits to the Central Bank, in the process totally ignoring FBME’s home regulator.

These are facts. There was no reason for such transfers, other than highly suspicious ones, given that the Central Bank already held over EUR 100 million of FBME deposits. The Administrator also knew that FBME would be charged a negative interest rate or a penalty for keeping excess funds with the Central Bank of Cyprus. Fortunately, measures were taken to prevent these instructions being executed.

This and other actions of the Administrator have progressively destroyed the value of the bank and seriously harmed many of its customers.

These facts are now being viewed in international arbitration at the ICC in Paris.