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Cypriots cast blame as meltdown probe begins

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Finger-pointing over who is to blame for Cyprus‘s crisis—and who may have had early notice of the looming meltdown—is gripping the island as it digs through the financial wreckage.

Newly elected President Nicos Anastasiades pledged on Monday to investigate his own family after allegations in Cypriot and Greek media that a company partly owned by an in-law had yanked millions of euros out of the country days before the crisis began.

Figures ranging from the country’s top church leader to lawmakers to the island’s media have joined the fray, some alleging outright wrongdoing by Cyprus‘s tightly knit elite, others simply adding their voices to the chorus of those demanding the finance minister and central-bank governor step down.

Also Monday, a prominent banker in Greece, seen by many in Cyprus as one of the people at the center of the crisis, defended himself against charges that he had wiped out personal and business debts and approved loans held by the island’s political and financial leaders in order to curry favor. The banker, Andreas Vgenopoulos, denied making any such loans and called for Cypriot authorities to release reports on Cyprus Popular Bank PCL, which he formerly headed, and to make public confidential details he had disclosed to them about his personal financial transactions.

Last week, Cyprus imposed capital controls—becoming the first euro-zone country to do so—to stem a feared outflow of deposits as it began an overhaul of its banking sector in order to clinch a €10 billion ($12.8 billion) bailout from its euro-zone peers and the International Monetary Fund.
Since then, the country has closed its second-biggest lender, Cyprus Popular Bank, and is moving that bank’s healthy assets to Bank of Cyprus PCL, the biggest bank, which is undergoing its own restructuring.

Big depositors at the two banks face losses of anywhere from 40% to 80% on their deposits, according to government estimates.

The latest allegations follow indications from euro-zone officials that money was leaking out of the country in the days after Cyprus agreed to an initial bailout March 16—a plan that would have included a controversial bank-deposit levy, later rejected by the country’s parliament. Although the Cyprus central bank blocked most fund transfers out of the country following that initial deal, senior euro-zone officials have raised suspicions that several hundred million euros left the country through loopholes, in violation of the ban.

The fresh allegations, published in Greek and Cypriot media over the weekend, focus on the days before the financial crisis erupted.

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Source: FULL ARTICLE at Fox World News

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Banks Reopen in Cyprus for First Time in Nearly 2 Weeks

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By Reuters

cyprus financial crisis banks reopen

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Philippos Christou/APPeople wait outside a Coop bank branch in Nicosia, Cyprus, on Thursday. Banks across the country were being replenished with cash, and scheduled to open for six hours at noon (10 GMT).

NICOSIA, Cyprus — Banks in Cyprus opened their doors on Thursday for the first time in almost two weeks, with tight controls on transactions to prevent a run on deposits after the island was forced to accept a stringent EU rescue package to avert bankruptcy.

In central Nicosia, queues of at least a dozen people had formed outside branches of the country’s two biggest lenders, Bank of Cyprus and Cyprus Popular Bank, also known as Laiki.

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Source: FULL ARTICLE at DailyFinance

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If Cyprus Were America

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By Morgan Housel, The Motley Fool

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Cyprus is now the most talked-about economy in the world — an odd position to be in for a country that few could find on a map until this week. 

Cyprus‘ $13 billion bailout, combined with roughly $6 billion of uninsured deposits whose future is in high doubt, seems minuscule compared with other international crises. And it is. But when put into context of how tiny a country Cyprus is, the numbers become staggering.

Cyprus has an annual GDP of $24.7 billion, according to the World Bank. Its combined bailout and deposit losses, therefore, total something around 75% of GDP.

If the United States required a bailout of equal proportion, the bill would total $12 trillion, or 18 times the size of the 2008 TARP bank bailout. Cyprus‘ deposit losses alone total up to the American equivalent of $4 trillion, or roughly equal to all the deposits held by Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup combined.

Cyprus Popular Bank reported a loss of $5 billion in the year ended September 2012, according to S&P Capital IQ. The equivalent of 20% of GDP, a similar loss in the United States would total $3.2 trillion, or nearly one-quarter of the entire market capitalization of the S&P 500 . And that was just one year’s loss at one bank. In the last two years, Cyprus Popular Bank lost $8.6 billion, or more than a third of Cypriot GDP. The American equivalent would be like losing the annual output of California, Texas, New York, and Florida combined.

These comparisons are useful only because they lead squarely to one point: The Cypriot banking sector was grotesquely large in relation to its economy. This is largely because the tiny island country became a haven for foreign cash, drawing in assets at a rate many times disproportionate to the wealth of its citizens. Peter Gumbel of TIME writes:

Over the past 30 years, since the fall of the Berlin Wall, the island has banked on its ability to attract money from Russia and elsewhere as an offshore center. Oversight has been tightened up since Cyprus joined the E.U. in 2004, but it remains relatively lax by international standards, and foreign companies pay a flat tax rate of just 10%. For a while the strategy seemed to work well; Cyprus built up a gargantuan banking industry, which is currently about five times the size of its total economy, according to Standard & Poor’s.

The flood of foreign cash further relied on the belief that Cyprus‘ EU neighbors and the continent’s central bank would could to the rescue should its banking sector stumble. To an extent, they did. But not before large depositors were forced to take large haircuts on their cash. Now, senior finance members of the EU are signaling that similar deals can be used as a template for future bailouts.

The idea of a banking haven is done, in other words. After the dust settles, it is unavoidable that Cyprus …read more
Source: FULL ARTICLE at DailyFinance

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Dow May Open Higher Following Cyprus Deal

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By Roland Head, The Motley Fool

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LONDON — Stock index futures at 7 a.m. EDT indicate that the Dow Jones Industrial Average may open 0.28% higher this morning, while the S&P 500 may open up by 0.42%.

Stocks may move higher this morning following news that a bailout deal has been agreed for Cyprus that should prevent the country from being forced into a disorderly default and possible euro exit. Cyprus will receive 10 billion euros in aid from the European Union, and all bank depositors with less than 100,000 euros in savings will be protected from losses, in line with the country’s deposit guarantee scheme. The Bank of Cyprus will take over “good” assets from the Cyprus Popular Bank, which will be shut down. Bondholders and savers with more than 100,000 euros in accounts at both banks will see heavy losses, and the plan will see the country’s financial sector shrink dramatically. Strict capital controls have been put in place that will prevent savers from withdrawing their funds from Cypriot banks, which remain closed today for a scheduled bank holiday but are expected to open later this week.

European stock markets rose following this news, and London’s FTSE 100 was 0.93% higher by 7:30 a.m. EDT, helped by a 3.2% rise for telecom group Vodafone, which rose on renewed speculation that it is moving closer to a deal to sell its share of Verizon Wireless to Verizon later this year.

In U.S. corporate news today, Dollar General reported fourth-quarter earnings this morning. The company earned $0.97 per share on revenue of $4.21 billion, topping analyst estimates of $0.90 in EPS and $4.26 billion in sales. Meanwhile, education company Apollo Group beat on the top and bottom lines this morning, reporting second-quarter EPS of $0.34 (excluding items) on revenue of $834.4 million versus estimates of $0.18 and $822.8 million, respectively.

Dell may also return to the spotlight this morning following reports that the company is evaluating bids from both Blackstone Group and Carl Icahn, who both place a higher value on the company’s shares than founder Michael Dell‘s private-equity-backed bid. BlackBerry stock is also likely to see further active trading today: The company’s share price fell by almost 8% on Friday after it failed to impress investors with the U.S. launch of the its new Z10 smartphone. BlackBerry’s shares fell by a further 5.9% in German trading this morning, suggesting that its sell-off may continue when U.S. markets open.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Monday's Market: How Cyprus Will Play Out

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By Alex Dumortier, CFA, The Motley Fool

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At this stage, anything that’s written about the outcome of the Cypriot situation is still speculative, as the Eurogroup working group that includes finance ministers from the 17 eurozone countries met in Brussels from 6 p.m. local time (1 p.m. ET) to hammer out an agreement with Cyprus. I’d expect negotiations to continue into the early morning hours. If you haven’t been following the news, here’s what you need to know about what will probably happen next.

Cyprus needs to come up with EUR 5.8 billion to receive EUR 10 billion in aid from the troika (the European Union, the International Monetary Fund, and the European Central Bank) to recapitalize its banking system. The plan developed last weekend — which called for a levy on all bank depositors to pay for Cyprus‘ contribution — collapsed after it was unanimously voted down by Cypriot lawmakers.

Time’s up!
Cyprus has one more shot at this, as the European Central Bank gave the nation a Monday deadline to reach an agreement with international lenders; failing that, the ECB will withdraw its emergency liquidity — which is the only thing that has been keeping the Cypriot banking sector afloat for months.

These are the broad strokes of a new agreement, as reported earlier today:

  • All uninsured depositors (i.e., those with an account that exceeds EUR 100,000) at the Bank of Cyprus, one of the country’s largest lenders, will suffer a penal haircut. The reports I have seen refer to either a 20% or 25% levy.

  • Uninsured depositors at other banks in Cyprus — whether Cypriot or one of the 26 foreign banks operating in the country — will suffer a 4% haircut.

  • Cyprus Popular Bank (known as “Laiki”), the country’s second largest lender, will be wound down. Laiki has now limited ATM withdrawals to EUR 100.

What does all of this mean for U.S. investors? If we wake up tomorrow morning with an agreement in place, the effect on U.S. indexes, including the Dow Jones Industrial Average will, in my opinion, be negligible — this outcome is largely discounted in Friday’s closing prices. That is as it should be — I think this is the most likely option. Cypriot lawmakers will (hopefully) have realized that they have run out of road, there are no good outcomes available, and a bad outcome is still preferable to a catastrophe. Should they choose collective suicide, however, the fallout would probably hit the shores of the U.S. stock market, and investors should expect a bumpy ride on Monday.

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Source: FULL ARTICLE at DailyFinance