PIMCO, the US investment consultancy firm, has delivered its report on the due diligence review on the diagnostic test for the capital needs of financial institutions in Cyprus.
(PIMCO was commissioned to carry out a due diligence review of the Cypriot financial sector and determine the capital needs of the financial institutions as part of Cyprus’ application for financial assistance from the European Stability Mechanism).
However, the Central Bank of Cyprus said in a statement that “The results of the report will be made public when the Memorandum of Understanding is signed between the Republic of Cyprus and the international creditors.”
As President Christofias has stated that he will not sign the Memorandum, the public will have to wait until after the inauguration of the new president sometime in March (unless the contents of the report are leaked in the meantime).
The report will be examined by the Steering Committee, who will then take into account the mitigating circumstances that have been put forward by the banks.
The Steering Committee, which appointed PIMCO, comprises the European Commission, the European Central Bank, the European Stability Mechanism, the International Monetary Fund, the European Banking Authority, the Ministry of Finance, the Central Bank of Cyprus, and representatives of the supervision the cooperative societies.
The Cyprus Central Bank has not (yet) issued a statement, but unconfirmed reports say that the banks’ recapitalisation needs will reach €10 billion in the worst case scenario, while rumours suggest a baseline scenario of some €8.7 billion.
On Friday, Government Spokesman Stephanos Stephanou said that the recapitalization of Cyprus banks should be done according to the baseline scenario of PIMCO’s due diligence and not the worst case scenario.
Including the €7.5 billion required to support the government, the total bailout could amount to €16.2 billion (using the baseline scenario) or €17.5 billion in the worst case.
According to the draft Memorandum of Understanding: “The (Cyprus) banking sector has been severely affected by the broader European economic and sovereign crisis, in particular through its exposure to Greece. However, many of the problems for the sector are home-grown and relate to overexpansion in the property market as consequence of banks’ poor risk management practices.“