Cyprus seeks PSI damages for Laiki Bank

Defunct Cypriot bank Marfin Popular is resorting to the International Center for Settlement of Investment Disputes (ICSID) and seeking damages of more than 4 billion euros from Greece over losses from the PSI debt restructuring conducted in 2012.

The claim was revealed on Thursday by Cypriot newspaper Politis and appears to have a political side given that the bank, commonly known by its previous name, Laiki, is state-controlled. However, the chances of it winning its case are very slim due to the res judicata in a case brought by a Slovakian bank to the ICSID.

Laiki’s claim is founded on the interstate agreement between Greece and Cyprus that the liquidated bank cites and concerns the mutual protection of investments. That protection did not apply in 2012 in the case of the Greek state bonds held by Laiki, which suffered a haircut and took significant losses that contributed to its downfall.

Given that a year later the bank was pronounced defunct and its depositors lost a major share of their money owing to the haircut imposed on all Cypriot lenders, the current Cypriot administration decided to act against Greece mainly using a political criterion and not a financial one – i.e. to show it is exhausting all available means for the compensation of banks from the PSI.

At the same time, 676 Greek depositors are demanding that Nicosia cover their losses resulting from the haircut on Cypriot bank accounts, namely at Laiki and Bank of Cyprus. The claim has been lodged at the same court, the ICSID, and claimants include private depositors, institutional investors and bondholders.