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Construction industry loans under microscope

Loans given to the construction industry by the Bank of Cyprus and the Cyprus Popular Bank will be discussed today at a meeting between the banks’ management and representatives from Pimco.

Pimco invetigates construction industry loansPIMCO, the US-based investment company best known as the world’s biggest bond trader, will be meeting the leaders of the Cyprus Popular Bank and the Bank of Cyprus in Nicosia today.

According to Cyprus News Agency (CNA) sources, the meeting will discuss issues relating to loans that both banks gave to the construction industry.

Representatives from Pimco are currently on the island to hold meetings with the Steering Committee to discuss issues relating to the company’s estimations of the capital needs of the Cypriot banks.

The Steering Committee is charged with overseeing the due diligence review of the Cypriot financial system that was carried out by Pimco. It includes representatives from the European Commission, the European Central Bank, the European Stability Mechanism, the International Monetary Fund, the European Bank Authority, Cyprus Finance Ministry, the Central Bank and the Cyprus Authority for the Supervision and Development of Cooperative Societies.

According to CNA sources representatives of troika in the Steering Committee requested details of loans provided to the construction industry by the Cypriot banks on Tuesday.

Readers' comments

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  • @Costas Apacket – I expect we’ll find out the extent of the problem in the coming days/weeks.

  • Costas Apacket says:

    Nigel, is this the part where Pimco discover that the typical LTV of those professionally valued properties compared to the double loans secured against them is around 300%?

  • @Janner – PIMCO instructed a number of professional property valuation firms to value the collateral used for property loans. The valuations were not completed until earlier this month.

    Now that PIMCO has received and reviewed those valuation figures, together with information provided initially by the banks, they now want a closer look at the banks’ property loan portfolios (which doesn’t surprise me in the slightest).

  • Janner says:

    I thought today was the big PIMCO announcement! The financial mirror states the following;

    ‘After a lengthy meeting of the Steering Committee which started at 08.30 on Tuesday and concluded after 23.00, negotiations on matters which have to do with the total amount for recapitalization needs will continue during the days to come via teleconference. Representatives of Pimco did not meet as expected with the leadership of the Cyprus Popular Bank and the Bank of Cyprus, in Nicosia having instead asked and received data on loans relating to the property sector’.

    What I don’t understand is what have PIMCO been doing all this time if they are only now asking for loan data. How can they do a full audit and report on it if they didn’t have all the data? Maybe its all a little over my head but I guess their report to the TROIKA is written on a post-it!

    Who is stalling this time, Cyprus, TROIKA or PIMCO?

  • Costas Apacket says:

    It was reported that the Pimco officials didn’t actually manage to meet with the Bankers to discuss loans to the construction industry in the end.

    I wonder why not?

  • John Swift says:

    Keep up the pressure on the MEPs

  • Steve says:

    I doubt that the discussions will be concerned with whether the loans should have been granted in the first place. The issue that is a sticking point in coming to an agreement on the bale-out is more about when loans should be declared non-performing and how they should be reflected on the balance sheet.

    So far as I know, the numbers are secret and the banks don’t want to make them public and don’t want to take the steps required when a loan is declared to be non-performing.

    They seem to be prepared to risk jeopardising the bale-out altogether rather than concede.

  • Mike says:

    Pay back time is approaching. All the artful ways are slowly being dissected slowly but surely.

    I wonder if anyone will be held to account for all the creative accounting and ‘special favours’.

  • Martyn says:

    I always Smile at the regular use of the the verb ‘to give’ ( typical dictionary definition: “to present* voluntarily and without compensation”) when describing Cyprus banks’ loans (e.g. ‘loans that both banks gave to the construction industry’). Loans are more normally ‘made’ or ‘granted’, leaving the distinct impression they need to be repaid. But then when you lend, long-term, to both Seller and Buyer of a particular property, secured on that property, the Seller with no particular repayment arrangement, perhaps the word ‘gift’ could be appropriate?

    * ‘present’ : “to furnish or endow with a gift”

    We have been referring in this Forum over recent years to the ‘looseness’ of Cyprus banks’ lending, especially in the high-growth ‘golden goose/egg’ property and construction era, Now, it seems the final days of Reckoning have arrived. Stand well back folks, the real depths of the problems and their impacts are about to be revealed.

    (Little wonder that at least one Presidential candidate is already talking about ‘mortgaging’ Cyprus’ MedGas, years before it even starts to be brought ashore!)

  • Costas Apacket says:

    Gavin, perhaps the big-wig bankers would serve cock-a-leekie soup at their candle-lit soiree, but they would never reveal to the prospective Pimco property buyers that this is probably the only form of lighting and heating that some of us are able to afford in Cyprus today.

    Nor would they share with Pimco the size of their non-performing portfolios.

    As the flacid organist plays away in the background he would most likely be singing that old standard, ‘If you place an aspirin in your slipper it will probably make you limp’.

  • Frank says:

    @Gavin

    If your reference to ‘non-performing’ of a sexual nature, concerns certain flaccid organs; may I suggest that the slang name for that organ is a deserving epithet for those who have conspired to cheat others?

  • Pete says:

    Let’s hope they’ll have time to put Alpha bank under a very large and public microscope.

  • Gavin Jones says:

    Costas.

    Do you think that the bigwigs at the banks will wheel in some of their developer chums and arrange some candlelit dinners at their houses in order to meet their families and demonstrate that all these stories about ‘artfulness’ are monstrous fabrications?

    Who knows, they might be able to sell PIMCO’s executives some off plan ‘luxury’ properties, using their own ‘friendly’ lawyers naturally, whose deeds will be available ‘at some time in the immediate future’.

    As for ‘non-performing’, isn’t that something of a sexual nature and has precious little to do with finance?

  • Costas Apacket says:

    These are the loans, many of which are non-performing, given to Cypriot property developers by their collusive mates in the Cypriot Banks, which are secured against the same property assets on which the banks have previously or subsequently loaned purchase finance / loans / mortgages to unsuspecting property buyers.

    These are the same Cypriot properties which have in many cases lost 50% of their original value or sale price and which now have double loans secured against them.

    The Loan to Value calculaton by the Banks must be very ‘Artful’ and ‘Creative’.

    The Guano is about to hit the rotating fan, big time.

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