Chairman of troubled Cyprus bank quits

AP News
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Posted: Aug 09, 2012 3:51 PM

NICOSIA, Cyprus (AP) — The chairman of Cyprus' second-biggest bank, Laiki Bank, resigned Thursday, saying that he was bowing to the government's wishes for him to leave.

Michalis Sarris said that he stepped down after Central Bank Governor Panicos Demetriades had asked him to. He said he was also told that the government also wanted him to resign.

Sarris didn't elaborate on the reasons why he was asked to leave. But he has been critical of the government's handling of the economy as the recession-stricken country's credit rating sank into junk territory.

In June, the government became Laiki's main shareholder after buying nearly €1.8 billion ($2.21 billion) in shares to help it meet European Union capital buffer requirements. The bank, which posted record losses last year because of its Greek exposure, couldn't raise the money privately.

Cyprus in June became the fifth country to seek a bailout from its eurozone partners and the International Monetary Fund, mainly because of its banks' exposure to Greece, where Cypriot banks have an extensive network.

Also Thursday, Demetriades told state broadcaster CyBC that he sees a bailout deal being signed by the end of next month. The government is currently in talks with representatives of the country's potential creditors — the EU, the European Central Bank and the IMF, collectively known as the troika.

However, he didn't specify how much Cyprus would need to recapitalize its banks and to meet its financing needs, saying only that the amount would be "sufficiently large."

He said measures that the government will have to take to trim spending, especially in the bloated public sector, "won't be pleasant." But he insisted that they will be "reasonable" so as not to plunge the country into recession.

"These measures have to be taken, they will be somewhat painful, but I repeat, they should be viewed as an investment for the future," Demetriades said.

Cyprus, whose credit rating is now junk, has been unable to borrow from international markets and is relying on a €2.5 billion loan from ally Russia to pay its bills until the end of the year. It has asked Russia for another loan of €5 billion.

The country's economy is projected to shrink by 1.5 percent of gross domestic product this year and Demetriades said it would stay in recession in 2013.