Cyprus secures bailout, avoids bankruptcy

[Omaha Steve]

Source: AP-Excite

BRUSSELS (AP) - Cyprus secured a package of rescue loans in tense, last-ditch negotiations early Monday, two EU diplomats said, saving the country from a banking system collapse and bankruptcy.

The cash-strapped island nation needs a 10 billion euro ($13 billion) bailout to recapitalize its ailing lenders and keep the government afloat. The European Central Bank had threatened to cut crucial emergency assistance to the country's banks by Tuesday without an agreement.

The finance ministers of the 17-nation eurozone accepted the plan reached in 10 hours of negotiations in Brussels between Cypriot officials and the so-called troika of creditors: the International Monetary Fund, the European Commission and the ECB.

Under the plan, Cyprus' second-largest bank, Laiki, will be restructured and holders of bank deposits of more than 100,000 euros will have to take losses, the diplomats said. They spoke on condition of anonymity pending the official announcement. It was not immediately clear whether the holders of large deposits in the remaining Cypriot banks would equally be forced to take losses.

FULL story at link.


Read more: http://apnews.excite.com/article/20130325/DA57QO100.html

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Protesters hold a banner during an anti- bailout rally outside of European Union house in capital Nicosia, Cyprus, Sunday, March 24, 2013. After failing for a week to find a solution to a crisis that could force their country into bankruptcy, Cypriot politicians turned to the European Union on Sunday in a last-ditch effort to help the island nation forge a viable plan to secure an international bailout. (AP Photo/Petros Karadjias)

[Berlin Expat]

1. Yes, they

avoided bankruptcy, but it's not too much to say the party's over in Cyprus.

The effects of this "bailout" are likely to be similar to what we're seeing in Greece. Add in a property bubble that's developed over the recent years - the next shoe to drop - and it's obvious that life in the south side of the island will never be the same.

The effects of this bailout will be felt for the next decade, and maybe longer. The financial services industry, the leading industry on the island, is shattered. Thousands of jobs in that sector will be lost, and when you factor in the various industries that depend on the financial services sector, it could extend to tens of thousands of lost jobs.

Things aren't going to be pretty. The banks will reopen on Tuesday, operating under draconian capital controls. Sad days ahead, it seems, for the Greek Cypriots.

[dixiegrrrrl]

3. and factor in the ex-pats who will avoid Cyprus banks in the future.

Last week, England officials worked with Cyprus' 30,000 British ex-pats to arrange online banking for all the money sent from England to the Brits.
You can bet non-Cyprus banks will be used in the future by many people.

fool me once..........

[msongs]

2. criminal mafia type gangs probably escaped with their $$ intact tho nt

[DeSwiss]

4. They didn't avoid bankruptcy....

...they just stole other people's money to cover up their own idiocy and perfidy.

- In fact, they're more bankrupt now than before......

[Cali_Democrat]

5. LOL....pretty much. n/t

[Berlin Expat]

6. That pretty much

sums it up. While anyone from the financial sector in Cyprus see any jail time over this?

Sure: Right around the time I'm appointed as God Emperor of Pitcairn Island.

[dipsydoodle]

7. There is nothjing to substantiate that they "stole" anyone's money.

It is possible for banks to fail without crimes being committed. The real background to their woes was the antics of US financial institutions 2007/2008 and then the haircut they suffered on Greek bonds the latter being the main cause of their current situation.

They have not been operating a tax haven : Cyprus is low-tax jurisdiction on the OECD white list.

Their banks had been kept liquid over the recent past by the ECB. In the absence of that support they would already have become insolvent and would not have been allowed to trade - would've been illegal.

[DeSwiss]

18. Excuse me......

...proposing to steal.

[dipsydoodle]

19. I thought you meant their banks

and not Cyprus itself.

[sendero]

8. Another ...

.. kick the can con job. I hope the Cypriots negotiated a tough deal but I doubt they did, even though in the final analysis the EU could not afford to let them fail, period end of story.

The economic crash of 2008 is not over, it is just very very slow.

[santamargarita]

17. You can bet the banksters here are looking for ways to

steal our money.

[dipsydoodle]

9. More here from Reuters - 10.08 GMT

Last-minute Cyprus deal to close bank, force losses.

Swiftly endorsed by euro zone finance ministers, the plan will spare the Mediterranean island a financial meltdown by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank".

Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalise Bank of Cyprus through a deposit/equity conversion.

The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros, Eurogroup chairman Jeroen Dijssebloem said.

Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution.

http://uk.reuters.com/article/2013/03/25/uk-eurozone-cyprus-idUKBRE92F07R20130325

What had caused the delay last night was the issues of bank restructuring which almost caused their Prime Minister to resign. One of those issues was regarding who would hold the bag on the €10 billion bailout - it will be the Bank of Cyprus.

The Reuters report mentions that the haircut on ALL a/cs, that's both banks and maybe even others, could be 30%. There may be too much emphasis on "Russin a/cs" here. Chances are that many Cyprus businesses hold more than €100k and that's aside from accounts which hold client funds such as lawyers and realtors. There is also the matter of at least one Cyprus pension fund which has an account to the value of €700 million in the Laiki Popular Bank.

Today is a public holiday in Cyprus. By the time the banks reopen in the morning capital controls will be in place locking out emptying of accounts and flight of funds abroad.

[pampango]

10. Another Reuters OpEd: Laiki Bank a 'very real world example' of a too-big-to-fail bank failing.

In the Europe vs Russia poker game, the Europeans have played the most aggressive move they can, essentially forcing Russian depositors to contribute maximally to the bailout against their will. If this is how the game ends, it’s an unambiguous loss for Russia, and a win for the EU. For one thing, there won’t be any capital controls: that’s a good thing.

Much more importantly, the two main vectors of contagion — hitting insured deposits, and exiting the euro — have been avoided. And most elegantly of all, the whole thing has been constructed under existing bank-resolution authorities, which means that no vote needs to be put to the Cypriot parliament, and therefore no amount of Russian pressure can veto the deal in Nicosia.

The deal as constructed is, in Pawelmorski’s wonderful phrase, “Iceland without the fish”: Cyprus, as Iceland did before it, is letting its banks fail, since they’re too big for the government to bail out. But Iceland has other industries besides banking — and, more importantly, has a floating currency as well, which by weakening can make those industries more competitive.

Meanwhile, the resolution of Laiki is going to give the world a very real example of what happens when a too-big-to-fail bank is allowed to fail. Laiki is small by global standards, but very large by comparison with Cyprus’s GDP. If Cyprus can survive Laiki’s collapse, then maybe — just maybe — the world could cope with the “resolution” of a big bank like Citigroup. But that’s a very big “if”. More likely, the costs to Cyprus of allowing Laiki to fail will be enormous, both politically and economically.

http://blogs.reuters.com/felix-salmon/2013/03/25/cyprus-its-not-over-yet/

I thought there were going to be major capital controls. Did that change since yesterday?

While this resolution may be similar to what how the banking crisis in Iceland was resolved, the aftermath may - as pointed out in the oped - be much worse. Cyprus does not have other major industries that Iceland had and cannot devalue its currency because it uses the euro. This deal may have preserved the euro in Cyprus for the time-being but sentiment there to drop the euro, and perhaps leave the EU, will grow over time.

The reaction of Russia today will be very enlightening. Much of the cost of this deal is being shouldered by Russian account holders. Though Russia did not offer much help last week when the Cypriot finance minister went there, they won't be happy about the deal that Europe has worked out, either.

Edit: I just saw this concerning the initial Russian reaction to the bailout deal:

Russian prime minister Dmitry Medvedev has accused Cypus of agreeing to "steal" from big deposit-holders at Laiki Bank and Bank of Cyprus.

It's the first official signal of Moscow's displeasure. From the Russian capital, Howard Amos reports (and explains that Medvedev was channeling Lenin):

Medvedev is the first Russian official to speak out about the Cyprus deal announced early this morning. “They are continuing to steal what has already been stolen,” Medvedev told a government meeting, using a phrase Vladimir Lenin to answer the allegation that the Bolsheviks were thieves.

Russian officials have repeatedly compared the Cypriot bank levy to Soviet-era expropriation.

But he added the impact on Russian companies and Russian money was not yet fully clear. “We need to understand how this story will develop.”

Medvedev was an outspoken critic of the initial agreement between Cyprus and the troika of the European Commission, IMF and European Central Bank to levy a compulsory tax on deposits, describing the plan as “absurd” last week and accusing the EU of behaving like “an elephant in a china shop.”

http://www.guardian.co.uk/business/2013/mar/25/eurozone-crisis-cyprus-bailout-deal-agreed

[dipsydoodle]

11. The capital controls did not form part of the proposal.

They didn't need to : that's a common sense internal matter.

In the absense of capital controls, following the haircut . if whoever and its not just the Russians, pulled the remaining balances they'd be back to square one - in fact behind that. Aside form that capital controls are capital controls : they can't impose them "sort of" - its all or nothing.

[dipsydoodle]

13. Confirmation of capital controls here

EU Commission says capital controls in Cyprus must be brief.

BRUSSELS (Reuters) - Cyprus may impose controls on the movement of capital but only for a temporary period of time, the European Commission said on Monday, hours after the island sealed a deal to close its second-largest bank in return for international aid.

"Any measures to restrict or limit freedom of movement may only be enacted exceptionally and temporarily and that is what has been requested by the Cypriot authorities," Michel Barnier, the European Commissioner responsible for the 27-member European Union's single market, told a news conference in Brussels.

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"This is a restriction on movement that may only last a few days," he said.

Barnier's remarks, where he underscored the need for any restrictions to be as brief as possible, adds to pressure on Cyprus to resume business as normal for its remaining banks as soon as possible.

http://www.chicagotribune.com/business/sns-rt-us-eurozone-cyprus-barnierbre92o0bg-20130325,0,6588044.story

[pampango]

14. Found more confirmation here. (And Iceland's 'temporary' capitol controls still in effect.)

Commissioner Michel Barnier told reporters that:

Any measures to restrict or limit freedom of movement may only be enacted exceptionally and temporarily and that is what has been requested by the Cypriot authorities.

Capital controls will mean very tough restrictions on bank account access and the movement of cash out of Cyprus, to help prevent a bank run.

James Mackintosh of the FT points out that capital controls can be a hard habit to break:

James Mackintosh @jmackin2

Capital controls: EC says could go in a matter of days. Icelandic controls now almost 5 years old....

[dipsydoodle]

15. The UK had capital controls in place

from the end of WW2 to the early seventies. No big deal for the population in general - just limited the amount of spending money which could be taken on holiday to Europe.

[dipsydoodle]

12. Poll: Is the worst over for Cyprus?

se 11.56am GMT :

Around 90% of readers fear that worse times are ahead for Cyprus, according to a poll launched this morning (which already has hundreds of votes).
Reader poll on Cyprus bailout


http://www.guardian.co.uk/business/2013/mar/25/eurozone-crisis-cyprus-bailout-deal-agreed

Cypriots are about to find out the true meaning of shit. I would maintain that the original proposal would've affected them the least over a period of say 5 years.

[geek tragedy]

16. The least awful option available.

The EU was not going to bail out wealthy Russian depositors.

They're going to have tough times ahead, but there was no way of avoiding that.

[Bosonic]

20. Have The Russians Already Quietly Withdrawn All Their Cash From Cyprus?

Yesterday, we first reported on something very disturbing (at least to Cyprus' citizens): despite the closed banks (which will mostly reopen tomorrow, while the two biggest soon to be liquidated banks Laiki and BoC will be shuttered until Thursday) and the capital controls, the local financial system has been leaking cash. Lots and lots of cash.

Alas, we did not have much granularity or details on who or where these illegal transfers were conducted with. Today, courtesy of a follow up by Reuters, we do.

The result, at least for Europe, is quite scary because let's recall that the primary political purpose of destroying the Cyprus financial system was simply to punish and humiliate Russian billionaire oligarchs who held tens of billions in "unsecured" deposits with the island nation's two biggest banks.

As it turns out, these same oligrachs may have used the one week hiatus period of total chaos in the banking system to transfer the bulk of the cash they had deposited with one of the two main Cypriot banks, in the process making the whole punitive point of collapsing the Cyprus financial system entirely moot.

From Reuters:

While ordinary Cypriots queued at ATM machines to withdraw a few hundred euros as credit card transactions stopped, other depositors used an array of techniques to access their money.

No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors.


More: http://www.zerohedge.com/news/2013-03-25/have-russians-already-quietly-withdrawn-all-their-cash-cyprus

[Bosonic]

21. Cyprus' banks to remain closed until Thursday

NICOSIA, Cyprus (AP) — The Central Bank of Cyprus says the country's finance minister has decided to order all banks in the country to remain shut until Thursday.

The announcement late Monday came hours after the central bank had said all banks except the country's two largest lenders, Laiki and Bank of Cyprus, would open on Tuesday morning.

Banks have been closed since March 16 to avert a run on deposits as the country's politicians struggled to come up with a plan that would raise enough funds to qualify for an international bailout.

An initial plan that would seize up to 10 percent of people's bank accounts had spooked depositors and was soundly rejected by lawmakers.

http://bigstory.ap.org/article/cyprus-secures-bailout-avoids-bankruptcy