Mortgaged assets and their disposal by the Banks

In Cyprus nowadays, the big debate is whether Banks are to be allowed to confiscate the mortgaged assets of the Non Performing Loans and what will happen with the remaining balance of the loan if this is not fully repaid from the sale of the asset.

The most important reason for having this dispute in the Parliament is because this is the best way to win voters. Through the years, politicians in Cyprus have proved that they do not care about the well-being of the “common” people. Regardless, the issue that is being bargained between all the political parties and the government, is whether and how to protect the first house of each family and the small medium companies from losing their establishments over the Banks. Noble act!!!

On the other hand though, let us see some facts:

• Where were these politicians when they were asked to bail-in the two biggest banks and people lost their money?
• Where were these politicians when they closed the second biggest bank, allowing people to lose all their deposits over €100.000 but not their loans and at the same time making sure that the 18% of the state’s share would remain and be shareholder of the other bank?
• Where were these politicians when they forced the Board of Directors of the Bank to increase its capital using only new investment and not allowing the existing shareholders (who have become shareholders due to the bail-in) to invest?
• What will happen if the Banks will not be able to absorb the impact of this law and the banking system collapses with a domino of the whole economy?
• What will happen if with the passing of this law everyone stops repaying their house loans?
• Why should someone be protected for not repaying his loan, provided he is able to pay at least a minimum amount, in the expense of the depositors who lost their wealth?
• Won’t that be assumed as a way of punishing the depositors for “wrongfully” trusting a Bank and at the same time rewarding the bad customers for trusting the same Bank?

 

I am pretty sure that no Bank wants to massively sell all mortgaged assets due to simple economies of supply and demand. Such a scenario will mean a great fall of prices creating an even larger gap, which the banks will have to receive from the borrower and/or the guarantors! Really, who actually believes that the Banks will receive the remaining balance from them? What will be their pressure point? Isn’t it more logical for the Banks to try to find a solution with most of the clients, provided of course they are willing to find a solution? Let us not forget that for a Bank expanding the loan’s maturity means more interest, which means more profits!

Anyway, let us protect the first house of the Cypriot families! What is that? A family of four leaving in a house of 200 square meters with a loan of €200.000 will be treated the same with a family of four leaving in a house of 750 square meters with a loan of €2.000.000, or another family of four who lives in a house of 200 square meters with a loan of €500.000? We are talking about the same family size and three different houses, the normal size and cost, an enormous size with plenty of quality and the normal size but with much higher quality!

 

Who is the great “Solomon”, who will decide for these irregularities? If the law is for all first houses regardless difference, isn’t that wealth racism? If the law will be based on criteria imposed, who will approve them and on what grounds? Will there be a minimum amount of square meters for an adult to own, which will be increased according to the members added to his family? Will there be a ceiling on the cost of quality of the materials used? Will I be able to get a loan for €2.500.000 in order to build my dream house and as soon as it is completed to stop repaying on the basis of this law?

 

Wait!!! No!!! I will be the unlucky one, who I was late in getting a housing loan and never paying it back. Why is that? Because no Bank will ever loan any amount of money for housing loans when the law says that you are allowed not to repay it and still remain the owner of the house. So what is left for me and the next generation?..to rent small apartments or small houses at high prices because the demand will be high. Oh, I forgot…I will have the satisfaction of not owning my own house for the sake of all those who decided that they do not need to repay their loans.

 

The Banks have made great mistakes, this is for sure, but this is not a reason for making decisions that in the long run will damage even more the economy. Cyprus has reached this point because bad decisions were made based on non economic principles from all participants. It is time to take the correct decisions so as to make a fresh and a correct rebooting! Houses will be lost, companies will be closed and that is not necessarily a bad thing. If you cannot afford to have a house then is better for you to rent or to move to a smaller house. If your company is not able to sustain its debt, then you are better off closing it down. If you can pay a smaller amount of your instalment then contact your Bank for negotiations. They will undoubtedly accept your money.

 

This is happening in all other countries, why Cyprus should be a special case? There is an existing law in Cyprus which allows Banks to confiscate mortgage assets and sell it in order to cover a debt. Why now this is unacceptable? Is it because it is imposed by foreigners and the time limit of the procedure will be much shorter? Someone says; let us create another bank, private or government, which will buy these loans from the banks. That is very nice…but really is there any private fund that will invest in such an investment with the law not allowing him to put pressure on the borrowers? A government bank on the other hand is better because the government is there for supporting people, but still they will need a big amount of money to buy these loans and then to sustain them, because again people will not feel any pressure to repay them.

 

Let us close the Banks and return to a barter economy! This way no one will owe to anyone and everyone will keep their properties. Of course we will have to persuade the foreign lenders of the Banks and the Government to proceed with a 100% bail-out of the debt. Easy task…let’s do that!!!

SMALL MEDIUM SIZE COMPANIES IN CYPRUS (SMEs)

They are considered to be the backbone of each country’s economy. Why is that? Mostly because in numbers they make the biggest share of one’s country businesses and due to that fact, most of the families rely on them. The big companies, although they employ more employees as a unit, they employ less than all SME together do.

So according to this, SME companies are indeed the backbone of the economy. But that does not necessarily means that they must remain in business if they have problems. In Cyprus, due to the economic crisis, there is a movement from both the owners of SME companies and from the politicians to protect the family based companies, the SME companies.

There is an apparent difference between SME companies and big companies. SME companies are family oriented, which makes them more human, while the big companies are not that human. That is not necessarily true but this is the stereotype. Regardless, if is possible to save all companies, then we should do that. Closed companies mean more unemployment and less competition, which is something that no one wants. But that is not an argument if the company is not viable.

In Cyprus though there are various SME companies. Most of them are fully family oriented (nothing wrong with that), which starts becoming a problem when from small company that it should be, they want to transform them into medium companies. Again that is not a bad thing when is done properly and by properly we mean specialization. Not all people are born to do everything. You cannot be the best carpenter, the best product manager, the best financial controller, the best marketer, the one who wants to do all. There is nothing wrong to be the carpenter of the company and the shareholder of the company, but at the same time to hire a financial controller or a product manager. The latter is the best way to transform your company from small to medium and who knows, maybe big!

In Cyprus we have reached the second generation family companies. But in many cases, if not the majority, the owner believes that he can handle every work in the company and can do that better than any expert. That is why SME companies are now in problem. Another great issue that did not help SME companies was the fact that there was no strategy and business plan when they started the business.

Should we do that? Should we help SME companies regardless and leave the big companies helpless? Should we help both of them or one of them in the expense of banks?

First of all, I believe that all companies, if that is possible, should remain in business. As more companies there are in an economy the better. Of course the companies should not have any going concern issues. If a company cannot sustain its existence, there is no reason of not closing. The fact that it provides the owners with income but at the same time builds up debt only covers the real problem. This debt will one day surface and then they will have more economic problems than if they closed the company years ago. That means that every owner should be able to realize when he must close a company and he must have the courage to do that.

A business plan is the most important part when you want to create a new business or to expand your existing one. Most probably it will not be accurate and will be based in personal opinion, since when you are small you cannot do a market research. But still, if it is based on reality and previous years’ results, then you may be close to actual results.

This article does not want to dive into the quest of who is to blame for the bad situation that SME companies are now, either if that is due to other factors or due to bad managerial decisions. Of course the latter is much worse than the former, but again this is not the case. This article is interested in the SME companies as entities.

For Cyprus economy, SME companies have reached a critical point, the going concern issue. The decision should be made without any personal feelings but based on pure economics. Whoever decides to continue should change the structure of the company. There are plenty of unemployed, experienced or not, individuals who can offer a more professional structure!

BRAZIL 2014

It is the greatest international football event (soccer for the Americans), which is organised every 4 years. Millions of people look forward for this event and for a whole month their live is planned according to the football schedule.

As for every international and well known event, there are always those who are opposed. This year’s Football World Cup is not an exception. The complaints started 4 years ago, while Brazil was preparing for the event. The issue is the poor economic position of many Brazilians.

Plenty of people and not just Brazilians are protesting against the Brazilian government for spending all these money for the organisation of the World Cup, while there are people living below the poverty level.

I can understand the feeling, but really…what can you do! If it was not for Brazil…it would have been another country, richer or poorer! Let us assume that this year’s World Cup was not organised in Brazil…how many believe that all these millions spend for the stadiums would have been given to the poor. I personally doubt it.

So…what do we have? We have an international event, which is watched by billions of people and thousands of them travelled all the way to Brazil. Why not use this event in “my” favour! All these people that travelled to Brazil will need somewhere to stay, something to eat, places to visit. That means that hotels will need more staff, as well as the restaurants and other tourist attractions. There is always room for small retailers at the street selling let’s say…water or various souvenirs! Jobs are always created when it comes to a big event. If you concentrate only on the bad things then you will not be able to see the things that are offered to you.

The most important is not to fight the system, you cannot win especially if you are not the majority, but you can work with it so as to gain too!

Greece – a football miracle!

It wasn’t long before (actually it’s been 10 years already) when Greece won the European Championship, against all odds. That time, Adidas found its perfect ambassador for the quote “Nothing is Impossible”! It was EURO 2004, which had an outsider and that was Greece (Hellas). But the Greeks, with the German coach/manager, won almost every team they were playing against and after winning for the second time the hosting country, Portugal, they celebrated the European Championship.

Since then, the Greek National team participated in all major events except the World Cup of 2006. Its participation was not always successful. At the European championship, they always succeeded to either take the ticket for the finals of the World Cup or advance to the knock out phase of the Euro.

Nevertheless, Greece was never appreciated, for what they have accomplished. They were always considered as the team playing the least attractive football and they were accused for playing destructive game. Is this true? The easy answer is no… since you have to win to move forward it means that you have to attack to score. Despite that, there is a difference in playing defensively from playing a destructive game. Of course there were times where Greece actually played a destructive game because the end justifies the means, but that was not always the case.

Coming to the present Greece participates in the Brazil World Cup. They were drawn in a group with Colombia, Ivory Coast and Japan. It was a group that did not have a “big” team but it was a difficult group. Again Greece was the outsider! There were people who were betting that Greece would not even get a point. By the first game, against Colombia and the defeat by three goals to nil, they were talking about a disaster for Greece.

At the next game, Greece played against Japan. From the mid of the first half they were playing with ten players due to a red card…so they changed their game plan to a full defensive game but not destructive since they were trying to win the game. The game was completed with a draw, leaving Colombia (who at the same time won the game against Ivory Coast) with six points and the only team from the group moving to the next round, while the other three teams will compete for the second ticket to the next round at the final game.

Ivory Coast needed at least a draw against Greece, who on the other hand needed to win and at the same time Japan to lose from Colombia. Both games were on at the same time. The final result was Colombia winning Japan and Greece winning Ivory Coast. According to the Ivory Coast manager, Greece was the best team and won fairly.

It may be the best game that the Greek National team ever played. Their defensive structure was perfect, not allowing the talented players of Ivory Coast to create any dangerous situations, while offensively it was one of the best games. We should not forget that by the 25th minute of the game they had to proceed with two unplanned substitutes due to injuries.

Adidas’ quote, this year is “all in or nothing”. It makes you wonder, is Adidas creating the quotes based on Greece? Most probably not! Is Greece trying to proof Adidas correct? Most probably not! Then what is it?

Adidas selects quotes that have to do with the positive site of life. Greece as a national team and as a country is a fighter. The above makes Adidas to choose very nice inspiring quotes and Greece proving them true! Because nothing is impossible, against all odds, Greece moves to the knock out phase of the World Cup. At the same time when you give the final fight it is better to give your “all in”, otherwise do not bother getting into the fight to begin with.

Greece is fighting against a huge economic crisis which has driven the Greeks to poverty, both as a country and as individuals. The crisis started from 2009 and the Greeks were protesting against the European Union and the IMF for the strict measures they were imposed. They never gave up, although no one believed they could make it. By the beginning of 2014 they were congratulated, for the first time, by the international lenders, for their steady recovery. This was followed by the return of Greece to the international markets.

Greek National football team is not different…is the fighting culture of the Greek people concentrated in those few football players. What will happen at the knock out phase does not really matters. The Greeks are in the 16 best teams in the world, at this phase everything is possible.

So ALL IN or nothing because NOTHING IS IMPOSSIBLE…Greece leads the way!!!

BECOMING A DAD FOR THE FIRST TIME

Some men, never pursuit the family life. They cannot imagine their life in a marriage…especially when they have good jobs and they can live their lives the way they want to.

This is the way of life I had until my thirties. Life though, most of the times decides for you without you! So, in my case, I met a woman (funny story…I met her in an aeroplane!), who changed my lifestyle and in less than two years of relationship we got married!!! And as if that change was not big enough, she got pregnant (ok…I had something to do with this) one year later! Let’s talk about life changing events, right?

It was a Sunday morning when my wife woke me up and told me “the test is positive”. I remembered that I haven’t reacted a bit…it was too early in the morning to have a reaction for a test which uses urine! On Monday morning we had (ok! …she had) a blood test, which showed that most probably she was pregnant. It felt weird but I cannot say that I realised anything…I think it was the fact that there was nothing solid that I could physically see or touch. By the second month, during an ultrasound exam, the doctor raised the volume and we heard a quick running sound…she told us this was the baby’s heartbeat. It was a very beautiful sound, I might add and again I was shocked but I still could not see anything.

On the third month we were told that 99%, the baby will be a girl. We decided that we did not care; we wanted a healthy baby no matter what the gender was.

On the fifth month, we were 100% sure that she was a baby girl and we started counting fingers, toes, eyes, nose and the rest that you need to know for the baby’s health. I was behind the doctor, in front of the screen and next to my wife. I was struggling to hold my tears…I was having a baby girl. A small tiny person! Four years ago I did not plan to get married and now I am becoming a father! WOW!!!

The following 4 months were not going either too fast or too slow. I think we both wanted to live every step of the way and enjoy it. Through these months we were preparing her room, because we were expecting our new family member and she should come to a perfect room, her new home.

The baby was expected on the 25^th of September, but she decided to delay her arrival one more day…a few hours actually. I didn’t want to be in the delivery room at first, but at the end I was there the whole procedure, watching everything and even participating, either with my camera, my comments or by cutting the umbilical cord and giving my daughter her first “independence”!!!

Baby girl is here!

I have a baby girl of my own now! I know that she depends completely on her parents, but still I haven’t realized what does this means.

The real shock came when we left the clinic and moved back to our home. Then, it was the both of us and the baby girl…both learning and adapting to the new life. Actually I believe that she was teaching us and not the other way around.

We have learned that life has a timetable, which needs to be followed with accuracy. We have learned how little babies communicate and how much power they can generate through their lungs and voices. She can do a lot of things, cry when she want to rest, play with you and hurt you with her tiny razor blade nails, weak you up in the middle of the night…but whatever she does you cannot get mad with her. Especially when she turns her eyes on you, looking at you as you are her whole world!

We are almost 9 months old now. She is making her first attempts to learn how to crawl and stand by herself while at the same time she wants you to assist her for making her first little steps. She started tasting our food and fruits and she seems to like them.

Last Sunday was my first Father’s Day! I did not get anything…I don’t want to, I just want my little baby girl to grow up healthy and happy and have a great life…this is my Father’s Day gift!!!

How life changes everyone’s priorities!!!

Economic crisis in European Union

European Union is a dream that most of the European countries had for plenty of years, hoping that in a period of time this could be a reality.

Initially everyone wanted an economic union, which would have allowed Europe to prosper and at the same time each country would have its own control. The dream was based on the USA structure but not with the centralized government…mostly because not a single country was willing to lose its control.

But can there be an economic union of various countries without having a centralized government?

The US, have succeeded in their union due to the centralized government and the centralized economic policy. Even though every state has its own government, they all answer to the centralized, federal government. They have governors and not presidents. Furthermore, the Federal Bank is controlling all banking regulations. There are wealthier states and poorer states, but the federal bank transfers capital from the wealthier states to the less fortunate ones without anyone asking any questions… it feels as being part of a greater nation that is obligated to provide any help needed.
In 2007, the US was faced with the greater financial crisis since the great depression in the 1930s. This financial crisis was created by the housing bubble where banks needed bailout and one bank, Lehman Brothers Holdings Inc, was declared bankrupt in 2008. Due to their federal reaction, they managed to control the crisis, sustain it to a manageable level and avoid any further collapses.

Let us see what happened to Europe. Although the crisis began from the US, it was transferred to Europe at a blink of an eye, due to the dependence that these two economies have over each other. The Europeans though have never managed to control the crisis the way that the Americans had. Since there is no federal government, Germany, the strongest economy of the European Union, took control of the situation making all the decisions and imposing the measures. Due to the lack of a centralized financial control, each country followed different economic policy with the known results.

Can Germany act as a “federal” government?

Since Europe hasn’t succeeded in making people accept the European Union as their greater country…not a single country could act as the “federal” government by its own. Germany may want to act as such but all the rest do not accept that intervention with good faith, while some decision made by the Germans did not allow a different reaction. The measures that Germans wanted to impose to the problematic countries (especially in the south) were so strict that more problems were created, especially in the part of the “union” feeling. All the countries in the North, that had no problems considered the countries of the south to be lazy and not worthy of being part of the union and at the same time, the northern European countries were challenging the meaning of the union and the goals of the south.

On the other hand…when you admit that the measures taken for Greece were wrong and that Cyprus was used as guinea pig… it is not something that you would expect people to accept.

Can European Union become a real UNION?

The future of the European Union is puzzling; everyone is challenging the real purpose of the union, and all those who were against the European Union from its creation are using this crisis for supporting their opinion.

I believe that for the European Union to succeed it needs work from everyone and especially from the Northern European countries, the wealthier countries. China and India are great on their own and are growing by the year and if Europe cannot become a union, then the future of all countries won’t be so good. The Euro will not be strong enough and the European economy will be controlled by the other markets and not by the Europeans.

CYPRUS ECONOMIC CRISIS FROM A DIFFERENT PERSPECTIVE

Since March 2013, Cyprus is experiencing its worst economic crisis, which is even worse than what have followed the Turkish invasion in 1974.

What we were told!
A lot have been heard from various economists that appeared in the TV panels, who had told us that they have been expecting this “economic closure” of Cyprus economy…and in most cases without offering a specific way out of this crisis.
At the other end, politicians began their favourite “sport” of blaming each other and for being the party that knows how Cyprus can go through the crisis without people experiencing the effects.
Finally, journalists blame everyone who goes against the well being of people.
The easiest target for everyone to blame is the Banks and in more specific the Bank of Cyprus. You see, Banks are the ruthless lenders who have taken (bail-in is something new for Cyprus) the depositors and the shareholders money to cover up their losses. Who is better than them to take the blame…everyone else is just the “people’s hero” who tries to minimize the effects. Of course, we should have in mind that the decision for the bail in was taken on a political level and without asking the bank!!!

Is it all so black and white? I think not…and always have in mind the capital “I”…because I am quite sure that not all will agree with me, especially if you have lost money or relate to a political party.
Let me write down what I believe is to blame:

• We react as herd…we do not pause to think; instead we dive in because the slightest delay might cause us millions of lost wealth!!! You see in 1999, everyone became stock brokers and investors…few had the knowledge. At the beginning of 2001, we were blaming the system, the Banks and the wealthy that they have tricked us into “stealing” our money. From 2005, everyone became a “well established” developer, regardless of their background and again a few years later, the Banks do not support the developers and are driving Cyprus to destruction
• We, as people/voters, like to hear great words and promises of continually increasing salaries, without ever challenging what they are telling us
• We have the attitude of “no way this will hurt us…it will pass by us and we will be ok”
• We adore having debt to the banks…each and every one of us. We must own that expensive car because they all have it…we must have a huge house because our neighbour does…we must travel every consecutive year whether we can afford it or not
• Banks were lending almost everyone who was applying for loan due to the fierce competition that existed
• Central Bank was allowing this madness to go on without imposing any strict measures
• Governments were allowing this lucrative life without trying to control it

Bear in mind that the above are in bullet points and not in numbering because they are not necessarily in that order.

What is really hiding behind this economic crisis?
Let see what we were told from various people in important positions:

• They told us that Cyprus Popular Bank should have been defaulted since the summer of 2012 but they sustained it for the elections – who cares about the consequences right!
• The European Central Bank was lending the Cyprus Central Bank from the Emergency Liquidity Assistance (ELA) to sustain a default bank and then they all blamed Cyprus Popular Bank for the €9,5 billion taken from ELA, which was transferred to Bank of Cyprus with a political agreement
• The bail-in has been introduced in the European Union during our presidential period, at least that is what has been leaked out
• We did not accept any foreign help because of the upcoming elections and our political beliefs, until we were threatened to do so and ready to do everything to slow down the fall. Of course all that happened because of the political party change in the government and the different political beliefs they have

At this point I would really want to ask a question…is there anyone who knows or does not know anything about economics, who believes that Cyprus’ debt, was/is putting European economic stability in risk?

Anyway, let us return to what happened in Cyprus. Cyprus’s debt is at €10 billions. The banks, on the other hand, although they have been passing all stress tests with great success, when it was decided to have a due diligence on them from a foreign company (see Pimco), all of the sudden they were found with a €10 billion loss (worst case scenario) in the coming next 3 years. Of course we then called Blackrock (another company like Pimco) to confirm the results, but we were never told what they have concluded…so we finally acquired the services of Alvarez & Marsal, who more or less have agreed with Pimco.

So…what was the final result?…Cyprus as a country was in deep debt and the banks in total they will have a great debt in 3 years time. Of course when you say “watch out and that company will make losses”, you actually create the losses. It is exactly like the services provided by the credit rating companies, when you downgrade a country or a company the market follows that trend you created and the rating comes true!

We are talking for a country though, that has discovered gas and most probably oil in its territory, which is more than enough to cover all the debt of the country and allow the government to guarantee the banks in case of the worst case scenario.

So…why Cyprus is involved in all these economic problems?

• Obviously there are some economic issues that must be resolved but
  • The public debt is not something that is creating problems unless it is increasing. The banks’ problems could easily be handled if you have a strong economically country and assistance from the Central Bank (in our case European Central Bank)
  • The natural resources discovered in Cyprus could have easily been the solution in the above problem
• Cyprus…whether we like it or not, is situated in a very important place, with Turkey not willing to give up their “rights” taken with the Turkish invasion
• The gas found in Cyprus…according to various analysts, can supply Europe with the necessary quantity so as for Europe not to be depended on Russia, who sells the gas at a higher price than actually costs
• A solution for the Cypriot problem with Turkey will allow the procedures for the gas terminal to start and proceed through Turkey
• A solution for the Cypriot problem will bring more stability in the area

Does this mean the economic problems that Cyprus and Cypriots are facing have nothing to do with economic issues and all to do with political issues? So is that the extra push we needed to accept the next given solution for Cyprus problem? Will we come to a point where we will regret the “NO” voted for ANAN plan, back in 2004?
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