High Court Judgement handed down

Nigel Howarth
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7
High Court Judgement handed down

JUDGEMENT has been handed down in London’s High Court in the jurisdiction case involving British buyers of property in Cyprus vs Alpha Panareti Limited, Andrea Ioannou and Roseberry Overseas Property Limited (ROPUK).

The judgement concluded that Brits who purchased property in Cyprus can have their cases against their developer heard and decided by the UK court in certain circumstances. The case was heard in June this year before the Senior Master, Master Whitaker.

We understand that the QC representing Alpha Panareti intends to appeal the judgement.

It is now expected that the claimants will pursue their cases of negligent misrepresentation and breach of contract against their developer in the UK, subject to any appeal.

EU involvement

The investment scheme to which this judgment relates has been the subject of a number of questions raised in the European Parliament:

Media interest

The local media in the North East of England have shown much interest in events with the Northern Echo recently publishing four reports:

In October 2011, the BBC broadcast a report by Chris Jackson of the Inside Out North East and Cumbria team about the scheme, a 12 minute clip of which can be viewed below.

[youtube=www.youtube.com/watch?v=xUe63Dy0Y5E&rel=0&w=470&showinfo=0]

 

The High Court judgement in full

High Court Approved Judgement: Claim No HQ11X02379

Fitch downgrades Cypriot covered bonds

Alan Lawton
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1

FITCH Ratings has taken various rating actions on Bank of Cyprus’ (BoC; ‘BB-‘/Negative) and Cyprus Popular Bank’s (CPB; ‘BB-‘/Negative) Cypriot covered bonds, as follows:

  • BoC covered bonds (Greek cover pool): downgraded to ‘BB-‘/Negative from ‘BB’/Negative;
  • BoC covered bonds (Cypriot cover pool): downgraded to ‘BB’/Negative from ‘BBB-‘/Negative;
  • CPB covered bonds (Programme I): downgraded to ‘BB-‘/Negative from ‘BB’/Negative;
  • CPB covered bonds (Programme II): downgraded to ‘BB’/Negative, from ‘BBB-‘/Negative.

The rating actions follow Fitch’s downgrade of Cyprus to ‘BB-‘/Negative/’B’ from ‘BB+’/Negative/’B’ on 21 November 2012 and the subsequent rating actions on the issuing institutions. In addition, Fitch’s updated refinance cost assumptions for Cyprus have been incorporated in the analysis following the publication of the agency’s assumptions as regards liquidity gap risks in mortgage covered bond programmes.

BoC (Greek pool) and CPB (Programme I) are secured by Greek residential mortgages, while BoC (Cypriot pool) and CPB (Programme II) are secured by Cypriot residential mortgages. The four programmes represent €4.55 billion of aggregated rated debt.

In line with Fitch’s covered bonds rating methodology, the Long-term Issuer Default Rating (IDR) constitutes a floor for the rating of the covered bonds. At the same time, Greece’s country ceiling (‘B-‘) applies to programmes secured by Greek assets. As such, the Cypriot covered bonds issued by CPB and BoC and secured by Greek residential mortgage loans have been downgraded to the bank’s respective IDRs of ‘BB-/Negative’, and no uplift for recoveries given default can be granted.

Fitch has assigned D-Caps of 0 for the programmes containing Cypriot assets reflecting the highly stressed economic environment of the country as evidenced by Cyprus’ non-investment grade rating. As a result, the ratings of BoC (Cypriot Pool) and CPB (Programme II) covered bonds can only exceed the IDRs of the corresponding issuers depending on stressed recoveries from the cover pool in the event of a default. A one notch uplift has been assigned to the ratings of BoC’s (Cypriot Pool) covered bonds based on the issuer’s unchanged committed Asset Percentage level of 90%. For CPB (Programme II) Fitch relies on the minimum level of overcollateralisation required by the Cypriot covered bond law (5%) to grant a one notch recovery uplift. As such, the ratings of the covered bonds issued under both programmes are downgraded to ‘BB’/Negative.

All else being equal, a downgrade of BoC or CPB’s IDR will lead to an equivalent downgrade on their covered bonds, therefore the IDR’s Negative Outlook also applies to the covered bonds’ Rating Outlook.

EU report into property development

Nigel Howarth
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5

IN 2011 the EU wrote to Cyprus seeking answers on the Title Deeds issue. Responding to a petition from the Cyprus Property Action Group (CPAG) and 41 MEPs, EU Commission Vice President Viviane Reding said that:

“…an administrative letter has been sent to the Cypriot authorities enquiring on the one hand, as to the actions carried out at national level to address the reported practices and… On the other hand, about the measures taken to ensure that consumers are adequately informed about the Cypriot law transposing Directive 2005/29/EC on Unfair Commercial Practices (the ‘UCPD’).

“Should the information communicated be unsatisfactory, the European Commission is prepared to take further action as appropriate”.

Although the EU received a reply from Cyprus in January 2012 and completed its report into the matter last April, nothing further has been heard from the EU.

In a written question to the European Commission, Scottish MEP David Martin has requested an update:

Question for written answer E-010363/2012
to the Commission
Rule 117
David Martin (S&D)

Subject: Commission report on property development in Cyprus

The Commission will be aware that in January 2012 it received a reply to a letter it had sent to Cyprus. The Commission’s initial letter was an enquiry into the actions carried out at a national level to address the practices of property developers and the measures taken to ensure that consumers are adequately informed about the Cypriot law on unfair commercial practices.

In April 2012 the Commission finalised its report on the Cypriot response.

Could the Commission outline the conclusions of this report and provide an update on the situation regarding consumer protection in dealings with property developers (this question is with regard to Alpha Panareti Limited specifically)?

Banking system comes under scrutiny

Editorial
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6

THE functioning of the institutions in the banking system is under the microscope of the House Institutions Committee.

The members of the Committee will discuss the promotion of loans in foreign currency without informing borrowers on the currency risks and the loans granted to senior executives of banks with bonus rates, according to allegations.

They will also discuss the extension of the branch network of banks in Greece, the high salaries and bonuses of senior bank executives during 2007 – 2012 and the privileged deletion of loan from financial institutions to organizations and companies connected with party and political persons and senior government officials.

The capital securities were discussed for a few minutes, after the letter sent by the Central Bank of Cyprus to the Parliament.

Given that the investigation is in progress, according to the letter, it would not be appropriate to reveal the positions of Cyprus Popular Bank and Bank of Cyprus on the issue.

Chairman of the Committee and EVROKO, Demetris Syllouris expressed the hope that the delay will not act as camouflage.

Chairman of the Capital Securities Association, Phoebus Mavrovouniotis said that they expected that the initial findings of the Central Bank would be a tool to convince the Troika that capital security holders were misled.

The legal adviser of the Association noted that the initial findings of the Central Bank ensure that there were irregularities, but we will expect the final outcome.

With regard to the general issue of the banks, the Chairman of the Commission, citing a letter from the Privacy Commissioner, noted that the disclosure of personal data in the parliament, ie disclosure of names, is permitted.

SEC Chairwoman, Demetra Kalogirou said that SEC’s report on Bank of Cyprus will be ready at the end of the year.

Specifically, it is investigated whether there were misleading statements to the public and misleading information was given to invest in securities.

For Cyprus Popular Bank, the investigation will begin in 2013.

Representative of the Central Bank noted that Pimco report also covering sponsorships with associated persons with the banks will be ready in mid-January.

He also stressed that the due diligence by Alvarez & Marsal will demonstrate how banks were led to the current state, while part of it will cover the extension of branches in Greece.

“As for the loans in foreign currencies, the Central Bank sent a circular in 2006 on the risks”, the representative said.

The MPs raised a number of questions, asking for the submission of data and the publication of names.

Fitch piles more junk on the banks

Alan Lawton
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6

Fitch downgrades Cyprus banks
FITCH Ratings has downgraded the Long-term Issuer Default Ratings and Support Rating Floors of the Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank to ‘BB-‘ from ‘BB’ following the downgrade of Cyprus’ sovereign rating on Wednesday.

The Outlooks on the banks’ Long-term Issuer Default Ratings are Negative in line with that of the sovereign. All three banks’ Short-term Issuer Default Ratings and Support Ratings have been affirmed at ‘B’ and ‘3’, respectively.

At the same time, the Viability Ratings for the Bank of Cyprus and the Cyprus Popular Bank have been downgraded to ‘c’ from ‘ccc’ and ‘cc’, respectively reflecting the agency’s belief that failure of the two banks is imminent.

Fitch expects that the Bank of Cyprus and the Cyprus Popular Bank will require sizeable capital injections and that these will be provided by Cypriot and/or international authorities.

The Viability Rating for the Hellenic Bank has also been downgraded to ‘cc’ from ‘ccc’ to reflect that failure of the bank appears probable. Fitch questions the capacity of the bank to continue to operate without support as it is highly vulnerable to further deterioration in its credit risk profile and market conditions. However, extraordinary capital support could also be provided to Hellenic Bank if needed.

In its press release Fitch said that the downgrades are based on its assessment that the state’s ability to support its major banks has reduced, which is largely driven by a materially weaker macroeconomic outlook and the continued high level of uncertainty over the costs associated with the overall banking system’s recapitalisation.

Fitch also believes that the lack of progress in negotiations with Troika puts the receipt of a support programme to address Cyprus’ sovereign issues and Cypriot banks’ recapitalisation at risk.

The Negative Outlook indicates that any further downgrade of Cyprus’s sovereign rating and/or any change that reduced the likelihood of international support could lead to a further downgrade of the banks’ Long-term Issuer Default Ratings, Support Rating Floors and Support Ratings.

Two notch downgrade from Fitch

Alan Lawton
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5

FITCH Ratings has downgraded the Cyprus Long-term foreign and local currency Issuer Default Rating (IDRs) two notches to ‘BB-‘ from ‘BB+’ pushing it further into junk territory.

In its statement Fitch said that its downgrade reflected the materially weaker macroeconomic outlook, a fiscal budget that has significantly underperformed expectations, and the continued high level of uncertainty over the costs associated with bank recapitalisation.

Fitch said that the three main Cypriot banks will need at least around a further €4 billion (22 per cent of GDP) in addition to the €1.8 billion already injected into Cyprus Popular Bank in 2012.

In addition, Fitch said that the government’s short-term financing flexibility had been materially reduced with its current dependence on bank financing to meet its funding needs.

The credit outlook remains negative.

Earlier this month the European Commission said that it expected the Cypriot economy to contract significantly in 2012 and that it will remain in recession for at least another two years as talks for a bailout from international creditors have dented sentiment and the country continues to feel the effects of the debt crisis in neighbouring Greece.

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