Cyprus may have to pump up to 2.5 billion euros ($661.5 million)into Greek-exposed Popular Bank to cover losses on a Greek writedown if the bank’s own recapitalisation attempts fail, a newspaper reported on Friday.
State intervention in the bank – Cyprus’s second largest – could be triggered by concerns that auditors Pricewaterhouse Coopers (PWC) could express reservations on the bank continuing to function as a viable economic entity, the authoritative daily Phileleftheros said.
One of the scenarios mulled was that Cyprus could be forced into a bailout mechanism for the requisite cash, the newspaper said, citing a Finance Ministry memo.
There was no immediate comment from the finance ministry and no one could be reached for comment at Popular.
Phileleftheros said the suggestion was included in a report Cypriot Finance Minister Vassos Shiarly was to submit to the island’s cabinet on April 26. The report was not submitted since the cabinet meeting was postponed until May 2.
Authorities were not immediately available for comment. On Monday, Shiarly told reporters that up to 1.5 billion euros may be required by one Cypriot bank, which he did not name, to recapitalise.
Phileleftheros said Cyprus theoretically could issue a bond to plug the gap, on the proviso it was not downgraded to junk by Fitch, the only remaining ratings agency which has not cut Cyprus to that category.
“Should that happen the answer would be that Cyprus officially apply to the support mechanism,» the report cited by Phileleftheros said. «Theoretically, bank capitalisation could also be with a bilateral loan of the government with a third country.”
Popular, which was previously known as Marfin Popular, posted a record 2011 full-year net loss of 2.5 billion euros on Feb. 29. It needs to raise more than 1.0 billion euros to recapitalise to a core tier 1 level of 9 percent by the end of June.