Greeks snaring thrifts

Greece finally does something helpful for Cyprus

Greece is finally doing something helpful for Cyprus. Last year's 75 per cent haircut on Greek sovereign debt hit the banks of the island state hard. This time, Bank of Cyprus and Laiki will be offered better terms to get out of Greece than competitors like France's Credit Agricole could obtain when they left the country.

Cypriot banks don't have a choice and must surrender their Greek assets. Offloading the two banks' combined Euro 20 billion of gross loans and Euro 15 billion of deposits is one of the conditions set by the Euro zone to the country's Euro 10-billion bailout. That must sting, given that the haircut forced on the large stocks of Greek assets is one of the reasons the International Monetary Fund found they needed Euro 10 billion of capital.

When Credit Agricole offloaded Emporiki to Alpha Bank last year, it was obliged to first pay 3 billion euros, in order to enable its subsidiary to absorb future losses. If it hadn't accepted, Agricole might have lost the loans it had provided at the group level to fund Emporiki.

Cyprus is being treated more leniently. Of the Euro 1.5 billion needed to give the Cypriot assets in Greece a nine per cent core Tier-I ratio, Euro 900 million could come from Greece's own Hellenic Financial Stability Fund, according to a person familiar with the situation. That's the outfit set up to recapitalise the Greek banking system last year. Cyprus would only have to put in the remaining Euro 600 million or so.

Athens' helping hand is, of course, driven by self-interest: if Cypriot banks failed, Greek depositors would be hurt. It is a sweet deal for Piraeus, whose assets will jump to around Euro 100 billion, making it the second-largest bank in Greece. Piraeus should find it easier to source part of its Euro 7.3-billion recapitalisation bill from the private sector.

It is still far from an ideal solution for Cyprus, which will have to use its bailout money to finance some of the provisions necessary for Piraeus to inherit a matched book of loans and deposits. Still, for once, the Greek cousins have improved Cyprus' lot, instead of making it worse.