cyprusmap
NY Times

Of all the financial implosions in the eurozone, few matched last year’s collapse of tiny Cyprus in terms of drama and chaos.

Frantic Cypriots queued up at banks to drain their accounts. Russian oligarchs scrambled to repatriate hidden fortunes. European officials, fearing another bout of market contagion, orchestrated an audacious 17 billion euro rescue package — forcing depositors to bear a large part of the cost, unlike other bailouts.

Now, the foundation of the bailout, an analysis by bond giant Pimco, is being challenged by economists, lawyers and politicians in Cyprus. They argue that the analysis relied too heavily on aggressive financial assumptions that in some cases deviated from international accounting standards, thus inflating how much cash banks needed to survive.

The basis for the criticism comes from an unusual source: a separate BlackRock study commissioned by the Cypriot central bank shortly before Pimco issued its report. The central bank chief, voicing concerns over Pimco’s models and its approach, asked BlackRock, the world’s largest investor, to dissect the work of its rival.

The BlackRock study, which has never been publicly released and was reviewed by The New York Times, suggests that the banks’ needs were €1 billion less than Pimco’s estimate of €8.8 billion; central bank officials did not brief the new Cypriot government on the report’s existence at the time of bailout negotiations in March 2013. Government investigators, who have continued to delve into the matter, say capital requirements were even lower, just over €6 billion.

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