Regarding the findings and recommendations in the Special Report of the Audit Service as well as the positions of the Attorney General and the Ministry of Finance, the following is noted:
In March 2018, the banking system and especially the former Cyprus Cooperative Bank (CCB), was under great pressure with deposit outflows reaching high levels, creating instability in the whole system, with worrying implications. The deposit outflows from the SCB alone exceeded €100 million per day.
The Council of Ministers, recognizing the criticality of the situation and the peculiar circumstances that prevailed, in its decision dated 14/3/2018, authorized the hiring of specialized services for the timely and effective response to the problems that emerged, with the cost of the assignment being borne by the SCB on the basis of the relevant Orders for the recapitalization of the SCB.
The possible collapse of the CBC, with cascading effects on the entire financial system of the Republic of Cyprus and the solvency of the State, would be a blow to the essential interests of the Republic. Therefore, the recommendation of the Audit Office of the Republic to seek bids from a limited number of pre-selected law firms was not practically and realistically feasible, as this process would require a considerably longer time to complete.
Freshfields Bruckhaus Deringe was selected as the preferred firm, as it had long experience in State aid matters and relevant experience in similar financial transactions. It is also noted that the involvement of the selected firm in a restructuring and privatisation transaction completed in the immediately preceding period in Germany was considered particularly useful and relevant. It was proven that all members of the team involved in that transaction were in a position to contribute to the benefit of the Republic of Cyprus.
The agreement between Hellenic Bank and SCT brought two important benefits to Cyprus. Firstly, it was possible to take 30% of the bad loans that existed in Cyprus out of the financial system, and secondly, it was the reason why the agencies brought the country back to investment grade upon completion of the transaction.
In conclusion, it is judged, on balance, that the choice of Freshfields Law Firm by the Ministry of Finance was the most appropriate in the circumstances, despite any criticism that may be levelled.
(MG/IK)
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