Is The Collapse Of Cyprus Due To This Man?

Tyler Durden's picture

Pinning the blame for the collapse of the Cypriot banking system (and the country itself) on the shoulders of one man may seem harsh but Laiki Bank's chief risk officer Dimitris Spanodimos represents the tip of the spear of mass delusion that encompasses most (if not all) of Europe. Cypriot banks had been swamped with deposits courtesy of their cozy relationship with Russia and this left them with, in Spanodimos' words, "comfortable liquidity and capital position to deepen selectively some highly profitable and highly promising client relationships." In short, they had so much excess that they had to invest it somewhere and given the regulators light tough (which gave the banks a clean bill of health through 2011), they bought Greek government debt and extending huge amounts of mortgage loans (in Greece and Cyprus). So, as the WSJ reports, while everyone else was purging, Spanadimos had swallowed the red pill and decided his banks' gorging on extremely risky investments was tolerable - until of course the EU pulled the plug with the haircuts from the Greek bailout. These losses, and the need for new capital, is why Cyprus needed a bailout - so who is to blame...


So a combination of zero-risk-weighting for Greek government bonds (and their juicy yield), huge deposit inflows, abysmal regulatory oversight, and a risk-manager devoured by the mass delusion that Europe (and more specifically Greece) was all going to be ok (who decided to pull a 'Corzine') - is why the Cypriot banks collapsed - and why the Cypriot people now stand in the street looking for handouts...



Via WSJ,

In August 2010, Greece's economy was tumbling into depression amid angry street protests and a €110 billion bailout. Dimitris Spanodimos, the chief risk officer of Cyprus's second-largest bank, remained bullish.


Mr. Spanodimos boasted on an Aug. 31, 2010, conference call with analysts that the bank was expanding faster than rivals in Greece and bulking up on residential mortgages. "We have used our group's comfortable liquidity and capital position to deepen selectively some highly profitable and highly promising client relationships," he said.


His bank, Cyprus Popular Bank PCL, is now ruined. Its destruction—and the near-failure of its larger peer, Bank of Cyprus PCL—was the result of poor choices by bank managers and of a European regulatory system that gave both banks a clean bill of health as their infections festered.




An examination of regulatory documents, conference-call transcripts and financial filings shows that both banks gorged on Greece while nearly everyone else was purging.


In late 2010, even after German and French leaders had openly agreed that creditors of fiscally weak governments should take losses on future bailouts, the two Cypriot banks appeared nonchalant about their exposure to Greek government bonds.


By the end of the year, according to European regulators, the two banks had a combined €5.8 billion ($7.5 billion) of Greek government bonds—€1 billion more than they had held just nine months earlier, and a sum equivalent to about one-third of Cyprus's annual economic output. By comparison, over the same period, Barclays cut its Greek government exposure by more than half.


Both Cypriot banks passed Europe-wide stress tests in 2010, relieving them of pressure to change course. They passed again in 2011.


"Their regulator was clearly signaling it was OK to go on" expanding in Greece, said Christine Johnson, a bond-fund manager at Old Mutual Global Investors in London, referring to Cyprus's central bank and European banking regulators.


Cyprus Popular and Bank of Cyprus have booked combined losses of €4.3 billion on their Greek government-bond holdings.




For a while, the Greek business was good, as both banks pursued business with their fellow Hellenophones. The 2006 annual report of Bank of Cyprus speaks of its "dynamic expansion in Greece" and plans for more branches. By the time Greece began to teeter in late 2009, both banks were in deep.




In July 2010, a pan-EU regulator conducted "stress tests"




Cyprus's two main banks passed easily, with a total of €572 million of surplus capital. The Central Bank of Cyprus declared "deep satisfaction" with the results, which it said "demonstrate the ability of the domestic banking sector to withstand shocks under adverse scenarios."


In 2010, after getting that all-clear, ... Both banks also expanded their portfolios of soon-to-be-toxic Greek government bonds.


In February 2011, Cyprus Popular's then-CEO Efthimios Bouloutas said "we're extremely comfortable" with the bank's capital levels, which he predicted would rise as Cyprus Popular churned out profits."We don't have any rush to strengthen them," he said. He couldn't be reached to comment.


Also that month, Mr. Spanodimos, the risk officer, told analysts during a conference call that he didn't think Greek or Cypriot loans would go bad at an increasing clip.


Around the same time, a top executive at Bank of Cyprus told analysts that the lender was "selectively and cautiously expanding its business in Greece," and noted the bank's capital position "remains strong."


In 2011, the European Banking Authority ordered more stress tests. Like the ones the previous year, they didn't contemplate losses on government bonds. The two Cypriot banks were again found to have plenty of capital to withstand a deteriorating economic environment.


Less than a week after the results came out, European leaders reached a deal for a new Greek bailout that included losses on Greek bonds. That plan was never executed—another plan,which saw steeper losses, eventually was—but now the specter of such losses was out in the open.




Three months later, Cyprus Popular executives said they were racing to downsize their Greek government-bond holdings. Mr. Bouloutas told analysts in late November 2011 that the bank was seeing some customers pulling their deposits as a result of "all this adverse publicity," but expressed confidence the trends would quickly stabilize. A week later, he resigned as CEO.


That year, the banks realized huge losses on their Greek government bonds. Both were left with lower capital levels than Cypriot regulators required. Bank of Cyprus scaled back its lending to individuals and small businesses in Greece, but its loan portfolio there stood at about €10 billion. Nearly 12% of the loans were classified as nonperforming.




Bank of Cyprus's estimated deficit was €1.56 billion and Cyprus Popular's was €1.97 billion. The banks had until June 2012 to come up with the new capital.


They couldn't raise enough, and Cyprus needed a bailout.

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Schmuck Raker's picture

How long was he with Goldman?

That's what I want to know.

SafelyGraze's picture

If you deposit $100 with the bank, that's your problem. If you deposit $100 million with the bank, that's the bank's problem." - J. Paul Getty

ACP's picture

"If you buy bonds issued by a country that is obviously bankrupt, you're a fucking moron." - Me

Stackers's picture

And now we start to see the true fuedal style wealth transfers unmasked in the circular ponzi scheme of banks using depositor money to buy government debt that has to be repaid with tax payer money, funding an extravagant crony bureaucracy and banker bonuses until it all blows up and the truth that they robbed the people of their money years ago comes out as the real accounting books are zero'd out.

redpill's picture

And a tiny handful of men can destroy an entire country. The planet is littered with economic nuclear bombs waiting to detonate, the little ones disguised in buildings with fancy-lettered signs out front that say Banco this or Popular that, and the big ones with funny names like JP Citichase Bank of Merrill America.

And yet we are consumed with fear over terrorists or global warming or illegal immigrants. There's an old saying, "don't worry about the rain when you're sitting on a geyser."

One of these days she's gonna blow.

ACP's picture

Mayer Rothschild was so right about controlling a currency and not caring about who writes the laws. Several countries now have been conquered and subdued without firing a single shot. The only shooting that will happen will be between the citizens, after the bankers have walked off with the money.

orez65's picture

It's so curious!

90% of the American population seem to remain totally clueless about the impending collapse of the US Dollar.

Maybe they are more at ease now that Dancing With The Stars season has started!!

prains's picture

right after Haliburton gets the no bid contract

hapless's picture

" now a senior official of the Federal Reserve division that supervises U.S. banks."


Nobody For President's picture

With his experience, he is PERFECT for the job.

Non Passaran's picture

Sorry, but are you a certified financial advisor?

Miffed Microbiologist's picture

Except when you do it with other people's money. There's a different word for that.


Omen IV's picture

"Also that month, Mr. Spanodimos, the risk officer, told analysts during a conference call that he didn't think Greek or Cypriot loans would go bad at an increasing clip."

assuming decision makers are "morons" is usually a mistake

Cassano?   Mozillo?   US S & L owners in 1980's after change in laws - were real estate developers especially south west and CA - its was about looting - selling the same property over and over at escalating values to the same tribe each taking a piece and drive the S&L in to BK

how could cassano buy $80-160 Billion in risk - for CDS on CDO's at AIG ????

when it doesnt make sense someone is getting paid personally for the decision

in greece two years ago when the Premier after being told by the troika that they would be getting hammered he said he would put it to a referendum to the people like Iceland - on a thursday - on following monday he changed his mind - in the interim his nephew in France traded CDS on greece and made a $1.2 billion

these guys are all using their position to steal nothing else is going on


Diogenes's picture

But all the financial experts agreed Greece's problems were fixed by the bailout.

laomei's picture

If you deposit $100 million with the bank and the bank has a problem, you just lost your $100 million.

flyingpigg's picture

" just lost your $100 million"

No deposit insurance at USD banks? In Europe you might only lose 99.9 million. The remaining 100 k can be withdrawn in tranches of 300 Euro a day. No need for foodstamps after the bank goes bust. One of the benefits of banking in EU! 

orez65's picture

I think he meant to say "loan" instead of "deposit"

Kirk2NCC1701's picture

That's why you need to "go squirrelly": Squirrel away your stash of precious & cash in lots if places.

Else you get what you deserve.

Cognitive Dissonance's picture

The King is only 'King' at the pleasure of his court. While the focus is on him it is clear he is doing the bidding of his court. So blaming him for what he does is missing the bigger picture.

<Can you say "misdirection" and "scapegoat"?>

DaveyJones's picture
  • "Blind who has eyes, beggar who now is rich"
  • "I say you are the murders you hunt" Tiresias (Oedipus)
Pseudo Anonym's picture

oh, i like your riddle.  you're coming along nicely

While the focus is on him [the king] it is clear he is doing the bidding of his court.

court, mean like "court jew", ... the hofjuden,

Temporalist's picture

What did he do?  Nothing wrong; he listened to the EU rhetoric that all was better and fixed moar.  He is a hero.

NotApplicable's picture

Better yet, he probably thought he was doing his part to help save the integrity of the EU.

BigJim's picture

What I don't understand is why they hadn't bought CDS to cover for this possibility. If they'd read Zerohedge, instead of having zero hedge, maybe things would've turned out different.

Cacete de Ouro's picture

Cypriot euro notes have a G serial number on the back. Slovenian euro notes have a H serial number on the back.

Just sayin'

When is a euro note not a Euro note?

fonzannoon's picture

This man personally delayed the S&P from breaking all time highs for several days. I demand an apology.

Unprepared's picture

fonzannoon, look deeper. the only way the stawks will be able to break one record high after another if things, by the magic of reuters headline, get unfixed (-1pt) then refixed (+3pts).

timbo_em's picture

I'm sure CRO Dimitris Spanodimos thought he had built a stronghold balance sheet and Greece was only a tempest in a teapot.

fuu's picture

Is he an admiral in the US Navy?

Kirk2NCC1701's picture

Nah, more likely from the CIA School of Risk Management.

The same school of 'Group-Think' that claimed that Iraq had WMD's. The dynamic is the same every time: One or few Alpha Dogs bark out some proclamations, the Betas get in line (if they know what's good for them), and the rest of the pack just runs along.

The truly evil sociopaths will position themselves at the top, so they can leverage the rest toward their egomaniacal goals. In a healthy system the checks & balances prevent that. In a sick one, they don't. Kirk out.

Kirk2NCC1701's picture

Sorry. Mine was directed at 'Malaka' Spanomidos.

BigJim's picture

Actually, the CIA did their best to inform everybody they thought the Iraq WMD's claim was bogus. But no-one in power wanted to hear it... not 'right-wing' Bush* or 'left-wing' Blair*

*left-wing, right-wing, LOL 

HulkHogan's picture

I was looking at Cyprus banking stocks this morning. What a disaster.

alien-IQ's picture

Perhaps, but holding one of those bank stocks over the weekend is a task more suited for a stunt man than an investor.

Cdad's picture

If you are a Cypriot, no need to buy 'em.  You are probably being paid in BoC or Laikia shares by now...100 per hour.

teolawki's picture

Insolvent bank shares. The new Cypriot currency.

alien-IQ's picture

Shouldn't that say "he swallowed the BLUE pill" rather than the Red?

(not to nit-pick on the metaphors but...)

flacorps's picture

People who don't like nitpickers ... apparently want nits!

Bicycle Repairman's picture

I wouldn't blame Mr. Spanodimos, but it must be admitted that when facing systemic risk and/or political risk, the CRO "model" and the Basel II "framework" have a value approaching nil.

Fix-ItSilly's picture

The bank was owned by Marfin, a Greek financial company.  He did what his boss asked for and Govt regulators approved of.