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Open letter to John Hourican

In an open letter to John Hourican, the CEO of the Bank of Cyprus, a buyer from Scotland asks if the bank intends to call in the security it holds on homes to help repay developers’ debts.

hourican developers debtWhat say you John Hourican, CEO Bank of Cyprus?

Welcome to Cyprus John. I am sure you have now settled in and have at least come across some of “the artful ways”.

I have decided to write to you via the good offices of the Cyprus Mail rather than BoC website form as I am sure via the latter you would never even see it.

I have to congratulate you for at least sending “stern” letters and having “uncomfortable” meetings with debtors to your bank. A new experience for many of them I suspect. There is one question remaining unanswered, although possibly never asked. Ultimately does the Bank of Cyprus intend to call in the security they hold over “our” houses to repay or contribute to the repayment of developer debt owed to your bank?

A simple yes or no will suffice.

Many thousands of insane people, who bought a mortgaged property, look forward to hearing from you!

Thanks and best wishes for 2014.

Andrew McClay,
Peyia/Livingston

Editor’s note

In a recent interview with the Independent Mr Hourican has given himself three to five years to rescue the Bank of Cyprus and said:

“I will be honest with the descriptions of the problems we uncover. I will be honest with everyone about how we are doing. Any other approach is misleading.”

Readers' comments

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  • @All – Daniel Hannan MEP raised this issue in a written question to the European Parliament in late October. Hopefully we’ll get an answer soon.

    And if Andrew McClay gets a reply from John Hourican, I expect we’ll soon hear about it.

  • Spirit of Odd Job Bob says:

    If I were back in evil banker mode, what would I do with the NPLs?

    1) Squeeze the fat ones (those with most to lose ie most equity). I’d threaten them with repossession etc, whacking up fees where possible while promising them their deeds. This would be done as a mission creep exercise where no hard and fast final figure were given at the outset as you may just say no. When you do eventually say ‘No mas!’, I’d pass your case over to the bad bank. Passing it to the bad bank would mean you’d have no control over the cash extorted from the purchaser and, as the order if creditor preference in case of loan defaults in Cyprus is winding up fees first, any extorted money could just line my own pockets. Sorry!

    2) Go for mortgaged property next. With these, I’d really go to town! I WOULD present them with an ASTRONOMICAL final figure and be as harsh and uncompromising as possible! The aim here would be to GET THEM TO DEFAULT. If you fell into this trap, I could then target your assets anywhere else in the European union which actually DID have any value! Again, once everything had been squeezed out of you and you’d be desperate to leave the island, the loan would be passed to a bad bank.

    3) Properties with little or no equity (but no mortgage from the purchaser). Again, threats of repossession etc, but these properties would be probably numerous and have little ransom value so would be farmed off to bad bank as soon as it were established

    4) Set up bad bank, ship everything to it, sell all bad debt and assets attached to developer mate who would offer a pittance for you to get out of the country. This you’d be likely to accept. The ‘good’ bank carries on trading, the bad bank winds up and the developer sells to a private equity distressed property fund and the whole process starts again.

    Ps. I would be one of the principal shareholders in the DPF (obviously!)

  • Janner says:

    @andyp. My post regarding which properties they will start with was an attempt at sarcasm!

    SoOJB is right. A well executed plan by the crafty Cypriot elite.

    My only question is. What are they going to do with all the NPL’s? So they call in the big debts and get nothing or next to nothing back (money/assets safely tuck away out of reach). They sell off non-mortgaged property (if they can find buyers to purchase property without title deeds). If they do this then they will no doubt be tied up in the courts for years with purchasers arguing that they paid for their properties fair and square etc. They then make a move on the mass NPL’s and get hit with more years of legal battles over mis-selling etc. It’s all been said many times before (you all know what the issues are). My big concern is the lack of detail. How on earth they are going to unravel this mess? I have no idea! Anastasiades clearly not up for this fight or many of the other difficult decisions ahead (look at the newly announced crony SGO heads despite his rhetoric). Interesting times ahead……

  • spirit of Odd Job Bob says:

    ‘Negligence’: Failure to take proper care over something.

    In mid 2007 (as has been described time and again), for a very limited amount of time, bond yield spreads in the eurozone converged to next to nothing (I.e. It was possible for Cyprus banks and state to borrow at similar rates to Germany. Sounds stupid when said out loud, doesn’t it?) This meant that, for the first time EVER, Cyprus banks had a narrow window of opportunity where they could borrow virtually all they wanted and lend it to their mates, sometimes saying it was for property development, sometimes actually building stuff, a lot of the time not even bothering. Laws have been introduced/ amended to completely protect the developer borrowers from criminal prosecution and from seizure of personal assets in case of default. No action was taken to receive payment of (hardly) any interest, euro-wide definitions of NPLs were changed so as to accommodate non-payment of interest and non-issuance of deeds for SOLD property would allow collateral no longer belonging to the developer to be counted in his limited company assets so as to comply with the new lending criteria. ALL cases re fraud, mis-selling, downright dishonesty would all eventually be referred back to the Cyprus courts, where all of the elaborate, ingenious and completely disadvantageous to the property purchaser laws were devised in the first place.

    As described many moons ago, the banks are now going after the purchaser and everyone else involved walks scot-free, their personal assets intact and outside of the currency controls.

    To my mind, INCREDIBLE amounts of proper care were put into this thing to get it to work so well. If anyone thinks the banks were negligent (or they still state they ‘really love Cyprus’ but are appalled at blah blah), they really just don’t get it.

  • andyp says:

    So as Janner says we did not buy property we bought a developer’s debt and at the end of the day the banks could not care less how the securities were effectively guaranteed by unwitting and innocent house buyers.

    2014/2015 will be a disaster for many when these developer loans are called in.

    They will start with those properties bought with cash Janner.

  • @Steve – there is another Brit in the Bank of Cyprus – Euan Hamilton. He’s there as a consultant to specifically look at the delinquency, restructuring and recoveries of loans.

    As for our former President, Demetris Christofias, he sent us all a Christmas card.

  • Steve says:

    To get back to John Hourican for a moment. His duty is to carry out the wishes of the board of Directors, who are responsible firstly to the sharholders (who have lost most of their investment) and secondly to the depositors of the Bank of Cyprus to do what is legal and necessary to save the bank and ameliorate their losses. In this he is supported up to the hilt by the Troika, the European Central Bank and the European Union, because the EU and the Euro are at stake.

    No one spares a thought any more for the depositors who lost money – maybe people think they don’t matter or they deserve it because they can afford it. All the Russian depositors who had large deposits in BoC and took a severe haircut expect Mr Hourican to recover some of their mountain of confiscated cash. The Vice-Chairman of the BoC is now Vladimir Strzhalkovskiy – do you really need three guesses as to where he comes from and who he represents? In fact, there are more Russian board members, Anjelica Anshakova, Dmitry Chichikashvili, Eriskhan Kurazov, Anton Smetanin and another; not quite a majority, but all well known international bankers and accountants. They were approved by the Central Bank of Cyprus and elected, along with John Hourican, to the board at the AGM in September 2013, They represent directly the major BoC customers who were and remain the most affected by the crisis – they still have billions on deposit or loaned to Cypriot businesses that is frozen by the Central Bank’s emergency exchange controls to protect the Euro and BoC.

    Apart from John Hourican, there are no Brits on the board to represent and defend the thousands whose homes are under threat in this financial mess and that’s because it’s peanuts compared to the total picture. In the board meetings he is just one member out of sixteen.

    Immediately after the AGM, the Cypriot developers who have defaulted on their loan and interest payments for years now were told to start paying, or else; that is step one down a long hard road. Time to start thinking how much more you are prepared to fork up to get your title deeds.

    Finally, At the end of 2013 it is appropriate to remember how a year ago a bad situation was made much, much worse by a person who is now lying low and getting no flak at all – Demetrias Christofias. Without him, there would have been no haircut, no Russians banging the table, and maybe no property seizures.

  • Deanna says:

    @Nigel, thanks for the link to the interview with Mr Hourican; interesting times – for him and us.

  • DaveC says:

    The last accounts (at 30/09/2013) of the Bank of Cyprus shows it had equity of only EUR2.8bn, so presumably with EUR 5.1bn of non-performing loans it is technically insolvent.

  • @Mike – No license is needed for renting out a property on a long-term basis, but renting it out as tourist accommodation may be more of a problem.

    I have never been able to get to the bottom of this. The Cyprus Tourism Organisation says that you need a license to rent to tourists, but other sources say that the relevant laws have been suspended.

    Another aspect to take into consideration is tax. In the UK, rental income from overseas property has to be declared on your annual tax return.

    And in Cyprus, the Municipality/Community can also charge a tax on lettings of up to 5% of the income received – not all of them do (yet).

    And then there’s the insurance to consider.

  • Mike says:

    Columba Zaal – Sorry to hear of your predicament however if it helps I think you may find that renting out a property is not permitted under Cypriot law without possession of a relevant licence. Buying property in order to rent out is presumably undertaken as an investment and like all investments can go up or down. I’m sure Nigel can clarify the rental licence issue if you ask him as I’m no expert, but you may want to make enquiries in order to satisfy yourself and remain on the right side of the law.

    Never has the term Caveat Emptor been more relevant.

  • Columba Zaal says:

    I echo so many comments made by others but I am another one who bought two apartments with hefty deposits and Swiss franc mortgages through the Alpha Bank which were totally miss sold off the bank premises by the lawyer! It is amazing how the developers have been allowed so much scope and support by the banks to exploit so many trusting purchasers (supported by many inappropriate agents) to part with their hard earned cash amid a plethora of lies and empty promises!

    Their needs to be some justice for most of us who have paid their mortgages regularly and now find themselves in a worse situation with the loan, higher monthly payments, inability to rent for a reasonable return, can’t sell because of deed situation (again due to developer or authority inaction) and banks now don’t want to lend to new purchases to buy off us even if we had deeds? Just seems there are no realistic options available to break the cycle many of us are in leaving too many to default or sell for a fraction (and keep a debt) to wealthy cash rich non residents or the banks will retain until the market recovers, writes off the debt and sell for a profit in the future!

    I think it is about time the banks dug deep, took proper responsibility and offered to take back properties cleanly by writing off the debts and release people from the current never ending cycle. Until something different is offered confidence will remain low and the economy will take a lot longer to recover! Shame overall as most of us love Cyprus and wanted to spend our money in their economy for the long term!

  • @All – Some interesting news in the Greek language media this morning.

    It appears that property developers and construction companies currently have loans amounting to €8.5 billion with the Bank of Cyprus. €5.1 billion of these are non-performing.

    More information at Developers: Μην πυροβολείτε την ανάπτυξη

  • Mike says:

    I would imagine the answer will be along the lines of ‘the bank will explore every avenue to recover what is owed to it permissible in law’ and we know where that will lead.

    Margaret – as sorry as I am at your predicament had you bought anything using a Swiss franc mortgage in any other state the current situation will not have changed. Currency fluctuation is not peculiar to Cyprus. Arguably the promotion and recommendation of such mortgages is questionable but not, I would suggest, illegal; although I am not an expert on Cypriot law which after all is the law applicable in this case. Not UK, French, Scandinavian or German law.

  • Margaret Rice says:

    As a owner of a larger villa in Coral Bay with a hefty deposit paid down, I’ve been caught up with the Swiss mortgage scam sold by the B of C in 1985. Despite paying a massive 2500 a month for over 8 years my mortgage is larger than it started with! There is something so terribly wrong with the banking practice over in Cyprus and somewhere down the line answers have to be forthcoming and compensation paid. Its a disgrace! Many of us have lost our life savings investing in Cyprus.

  • Peter Davis says:

    Again I ask why should the banks be ‘red circled’ with regard to loss, when they were negligent both in their definition of a NPL and negligent in their lack of action in chasing a debt.

    Their inaction allowed a small debt to spiral out of control. A smaller debt could probably have been cleared by the developer at the time, if not placing the company into liquidation would have saved others ‘victims’ who bought later on when the company was in effect insolvent but allowed to trade.

    If a loss is to fall it should be at the doors of the banks.

  • Janner says:

    I wonder which properties they will start with. The ones with or without a mortgage/loan? There is no incentive to pay off your mortgage/loan as this will make the property more attractive to the bank. It would appear that I have just purchased debt not a property. I am not a banker or investor but it does seem that way.

  • andyp says:

    With the Troika recently instructing the pursuit of 22 NPL’s of unnamed developers and BoC now sending stern letters to debtors you do not need to be a genius to realise where this is all heading over the next few years.

    These bankers have been lurking in the shadows for years feeding the fire of developers and now look ready to profit from the misery of innocent property buyers who have been conned into buying mortgaged properties.

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