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Bank of Cyprus' Big Depositors to Lose Up to 60 Percent of Savings

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By The Associated Press

Cyprus crisis

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(AP Photo/Petros Giannakouris)

By MENELAOS HADJICOSTIS

NICOSIA, Cyprus — Big depositors at Cyprus‘ largest bank may be forced to accept losses of up to 60 percent, far more than initially estimated under the European rescue package to save the country from bankruptcy, officials said Saturday.

Deposits of more than 100,000 euros ($128,000) at the Bank of Cyprus would lose 37.5 percent in money that would be converted into bank shares, according to a central bank statement. In a second raid on these accounts, depositors also could lose up to 22.5 percent more, depending on what experts determine is needed to prop up the bank’s reserves.

The savings converted to bank shares would theoretically allow depositors to eventually recover their losses. But the shares now hold little value and it’s uncertain when — if ever — the shares will regain a value equal to the depositors’ losses.

Europe has demanded that big depositors in the country’s two largest banks — Bank of Cyprus and Laiki Bank — accept across-the-board losses in order to pay for Cyprus‘ 16 billion euro ($20.5 billion) bailout.

Cypriot officials had previously said that large savers at Laiki — which would be absorbed in to the Bank of Cyprus — could lose as much as 80 percent. But they had said large accounts at the Bank of Cyprus would lose only 30 to 40 percent.

Analysts said Saturday that imposing bigger losses on Bank of Cyprus customers could further squeeze already crippled businesses as Cyprus tries to rebuild its banking sector in exchange for the international rescue package.

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“Most of the damage will be done to businesses which had their money in the bank” to pay suppliers and employees, said University of Cyprus economics Professor Sofronis Clerides. “There’s quite a difference between a 30 percent loss and a 60 percent loss.”

With businesses shrinking, the country could be dragged down into an even deeper recession, he said.

There’s also concern that large depositors — including many wealthy Russians — will take their money and run once capital restrictions that Cypriot authorities have imposed on bank transactions to prevent such a possibility are lifted in about a month.

Cyprus agreed on Monday to make bank depositors with accounts over 100,000 euros contribute to the financial rescue in order to secure 10 billion euros ($12.9 billion) in loans from the eurozone and the International Monetary Fund. Cyprus needed to scrounge up 5.8 billion euros ($7.4 billion) on its own in order to clinch the larger package, and banks had remained shut for nearly two weeks until politicians hammered out a deal, opening again on Thursday.

But fearing that savers would rush to pull their money out in mass once banks reopened, Cypriot authorities imposed a raft of restrictions, including daily withdrawal limits of 300 euros ($384) for individuals and …read more
Source: FULL ARTICLE at DailyFinance

News, Politics, Government

As Russia backs Cyprus' seizures of deposits, big money may already be out

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By Alec Luhn

As crisis-ridden Cyprus proceeds with a bank restructuring program that will take as much as 40 percent from large account holders, most of whom are Russian, the Kremlin has made an about-face and supported the plan.

Commentators wondered how Russia could go along with a restructuring that would cost its citizens an estimated four to six billion euros. The reason may be simple: The biggest Russian account holders already have gotten most of their money out of this island tax haven through a gaping loophole, according to some reports.

After a nearly two-week closure, Cyprus banks will reopen Thursday with limits of 300 euros ($383) per day on withdrawals. The European Union and the International Monetary Fund agreed with Cyprus on Monday on the conditions for a loan of $13 billion to the troubled country. The bank restructuring has sparked anti-austerity protests in Nicosia.

Under the terms of the loan, the island’s second biggest bank, Laiki, will be closed down and accounts with less than 100,000 euros will be transferred to the larger Bank of Cyprus. A levy to raise billions of euros towards the bailout then will be placed on depositors with more than 100,000 euros, resulting in a an estimated seizure of 40 percent.

Most of the deposits of more than 100,000 euros at the Bank of Cyprus and Laiki Bank are ultimately owned by Russians, the Financial Times reported Monday. Russian account holders stand to lose a total of four to six billion euros in the deal and won’t be able to remove their remaining holdings due to sharp limits on transactions, according to the Russian newspaper Vedomosti.

Cyprus traditionally has been a popular tax haven for Russian businesses thanks to lax rules on reporting the source of the money, which has led to accusations of money laundering. The ratings agency Moody’s has estimated that Russian holdings in Cyprus banks have amounted to about $31 billion.

After some initial bluster, the Russian government has supported the Cyprus plan, albeit reluctantly. On Monday, even as Prime Minister Dmitry Medvedev said that Cyprus continues to “rob the loot,” President Vladimir Putin ordered his government to restructure its 2.5 billion euro loan to Cyprus, according to an announcement on the official presidential website.

The announcement also said that Putin “considers it possible to support the president of Cyprus‘ and the European Commission‘s efforts to overcome the crisis in Cyprus‘ economy and financial and banking system.”

The new, softer line on Cyprus puzzled some experts, who said that Russia easily could have bailed out the island nation, the Christian Science Monitor reported.

But the Kremlin’s tacit approval may reflect a realization that Russian business will emerge from the Cyprus fiasco with less damage than previously thought: According to market watchers, the new tax on bank holdings won’t impact the country’s economy significantly, as sizeable Russian holdings there already have been removed, the BBC Russian Service reported.

The possibility of default in Cyprus has been looming for more than a year, and many Russian businesses registered there were prepared for such a …read more
Source: FULL ARTICLE at Fox World News

Business, Finance, Occupation & Industry

Will Cyprus Affect Your Precious-Metals Portfolio?

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By Doug Ehrman, The Motley Fool

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While the deal reached over the weekend to restructure the critical debt situation in Cyprus has been met with wildly disparate opinions from across the eurozone, it’s creating new standards that will affect both EU countries and the global economy. As is so often the case when considering the global macroeconomic results of a situation like this one, the results are working to create competing forces within certain markets. Precious metals, including gold and silver, tend to be bolstered by weak economic conditions. Conversely, however, the turmoil in Europe is positive for the U.S. dollar — this is ultimately bearish for metals. Understanding these forces is critical to being properly positioned as the situation continues to unfold.

The deal itself
To keep Cyprus from going under, seeing major banks fail, and forcing the country to potentially withdraw from the EU, a deal has been reached by which 10 billion euros will be directed to backstop losses. As a part of the rescue, Laiki Bank, the second largest bank in Cyprus, will be would down. While deposits under 100,000 euros will be protected, large depositors stand to lose significant funds. This was a necessary provision of the deal and ultimately helped push it past key decision-makers.

Many of these are Russian, which has led to stark criticism from the Russian prime minister, who referred to the measure as “stealing.” This stance didn’t stop President Vladimir Putin from working to restructure a $3.2 billion loan made to Cyprus in 2011. Putin, who could probably write a personal check to cover the full amount, is pushing to stabilize the situation.

The European trickle down
While many European officials see the bailout as a critical measure, it doesn’t come without certain conditions that will affect how the EU addresses similar situations going forward. The first new standing edict is the bailout/bail-in concept: No longer will the banks of any nation receive a bailout without having the depositors of those banks feel a good measure of the pain. Secondly, and along those same lines, is the EU will no longer tolerate so-called “casino economies,” meaning those in which the banking sector eclipses the nation’s GDP and leaves the entire system imperiled when problems emerge.

The fallout
While in a very real way, the bailout should serve as a stabilizer for the EU economy, both by ensuring the solvency of Cyprus and by protecting the integrity of the EU itself, some economists see it as further undermining long-term stability. Given the provision that will require large depositors to bear some of the pain if the bank fails, it makes it probable that private capital will avoid troubled institutions and times when they need help most. Furthermore, the entire situation serves as a continuing cautionary tale for the stability of the EU economy, one reason the euro dropped shortly after the deal was made public.

Competing forces
The existence of any global economic crisis tends to be a bullish …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Bailout, Cyprus-Style: Could It Happen Here?

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By Amanda Alix, The Motley Fool

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The deal to rescue the banking system of the tiny island of Cyprus has the world drawing a guarded deep breath. Certainly, the bailout is good news. Just as certain, however, is the distasteful quid pro quo: Many depositors will have their bank accounts raided to pay for it, in a pact agreed to by others.

This is only one uncomfortable facet of the bailout terms, but it is a corker. It didn’t take long for media reports to emerge strongly suggesting that this is the new European method for dealing with these ticking time bombs. Despite an official denial of this rumor, markets slogged to a desultory close, unsure of what will happen next.

Can it happen here?
The news that smaller savers — that is, those with bank accounts with less than $100,000 therein — won’t have to pony up for the rescue is good, of course. But those with larger accounts could lose up to 40% of that overage amount — not good news at all. And, since the largest bank, Bank of Cyprus, will be absorbing the assets of the next largest, Laiki Bank, depositors there will likely be completely out of luck.

This, of course, would be akin to JPMorgan Chase swallowing Bank of America whole, then taking some of its own clients’ money, and probably more from customers of B of A, to hand over to the government. Considering how upset Main Street was with our own bank bailout, I suspect this action would be met with an unusually vocal protest.

Then, of course, there are the very wealthy depositors. Considering that Bank of America, JPMorgan, Citigroup , and Wells Fargo all have private banks for well-to-do clients, you can just imagine the howling that would take place when those funds were seized. Assuming, of course, that the well-heeled — possibly learning a lesson from the current debacle — hadn’t withdrawn all of their money ahead of time.

But, you think, this would never happen here. After all, Cyprus is only taking the haircut from accounts harboring more than six figures, and the first $100,000 is insured by the Central Bank of Cyprus — just as our own deposits, up to $250,000, are insured by the Federal Deposit Insurance Corporation.

All true, but the ugly fact is that just last week, all account holders were going to take a hit. For small depositors, it was to be 6.75%; for amounts over $100,000, 10% was to be sacrificed. So, insurance would have meant nothing, just last week.

Could it happen here? If we were ever forced to ask the world for a bailout, it probably could. As the too-big-to-fail debate heats up again, that is something to keep in mind.

Wells Fargo‘s dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Dow May Rise Despite Cyprus Uncertainty

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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 0.11% higher this morning, while the S&P 500 may open up by 0.26%. The CNN Fear & Greed Index has continued its recent retreat, closing at 67 (greed) last night, down from its previous close of 73.

Europe could be in the spotlight once more today as events in Cyprus enter a critical stage. Cypriot politicians have drawn up a wide-ranging set of capital controls that they hope to vote into law later today. The controls are part of a nine-bill package aimed at restructuring the country’s Laiki Bank and finding a bailout solution that will be acceptable to the European Union and the International Monetary Fund following Russia‘s refusal to provide further assistance. A final agreement is unlikely before the weekend but is needed by Monday, when the European Central Bank has threatened to withdraw liquidity support from Cypriot banks.

Elsewhere in Europe, Germany’s Ifo Business Climate Index dropped for the first time in five months from 107.4 in February to 106.7 in March. European markets were mixed through the morning, but there were no serious sell-offs. In London, the FTSE 100 was up by 0.31% at 7:25 a.m. EDT.

There are no major economic reports scheduled for release in the U.S. this morning, but companies due to report quarterly earnings before the opening bell include Tiffany, which is expected to report fourth-quarter earnings of $1.36 per share on revenue of $1.25 billion, and Darden Restaurants, which is expected to report earnings of just $0.01 per share for the third quarter. BlackBerry will also be in the spotlight today as it launches its new Z10 smartphone in the U.S.

Nike stock could be actively traded this morning after the sportswear firm reported a 55% rise in quarterly revenue after the close last night. Quarterly earnings rose to $0.73 per share compared with $0.61 per share for the same period last year, significantly ahead of analysts’ consensus forecasts for earnings of $0.67 per share. Nike stock was up 8% in premarket trading this morning, while Micron Technology rose by 6.4% in early trading after the company beat estimates with second-quarter sales of $2.08 billion.

Finally, let’s not forget that the Dow’s daily movements can add up to some serious long-term gains. Indeed, Warren Buffett recently wrote, “The Dow advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions.” If you, like Buffett, are convinced of the long-term power of the Dow, you should read “5 Stocks To Retire On.” Your long-term wealth could be transformed, even in this uncertain economy. Simply click here now to download this free, no-obligation report.

The article Dow May Rise Despite Cyprus Uncertainty originally appeared on Fool.com.


Roland Head has no position …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Cyprus Scrambles to Devise Plan to Avert Banking Crisis

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By The Associated Press

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Petros Karadjias/AP An employee of Laiki Bank cries during a protest outside the Cypriot parliament in Nicosia, Cyprus on Thursday. Cypriot officials are scrambling to cement a revised plan to raise funds demanded by international creditors in exchange for a bailout.

By MENELAOS HADJICOSTIS

NICOSIA, Cyprus — Cypriot authorities were putting the final touches to a plan they hope will convince international lenders to provide the money the country needs to avoid bankruptcy within days.

As well as trying to forge an overall financing package, lawmakers were meeting to decide the fate of the country’s second largest lender Laiki which was hardest hit from its exposure to bad Greek debt.

Uncertainty over the position of Cyprus‘ European partners to the broad thrust of the country’s new proposals formed the backdrop to Friday’s discussions. There are also questions over whether Russia will be involved in any final package even though a two-day meeting between the finance ministers of Russia and Cyprus broke down with no agreement.

One concrete proposal is the restructuring of Laiki, which it is estimated will generate around €2 billion of the €5.8 billion ($7.5 billion) the country needs to raise itself. If the new package is agreed by international creditors, then Cyprus will be able to secure another €10 billion from the eurozone and the International Monetary Fund.

A new package is necessary after Cyprus‘ parliament rejected a plan earlier this week to grab up to 10 percent of bank deposits.

The country needs to have the plan in place by Monday as the European Central Bank has said it will cut off emergency support to the banks. That could trigger their collapse and leave the Cypriot economy reeling. Many in the markets think that would mean the country would have to leave the euro with potentially damaging repercussions across the 17-country eurozone.

Worried Laiki employees gathered near parliament for a second day after the governor of the country’s central bank announced that authorities would look to safeguard the bank’s viable parts and isolate its toxic assets. The hope behind the plan is to staunch any possible contagion effects to the country’s other lenders.

“The bank is finished, we’ll lose our jobs and I’m worried about my kids,” Laiki employee Nikos Tsiangos behind barricades and a cordon of police that have blocked the way to Parliament. “They’ve brought us to the brink, the Europeans wanted to destroy our economy and they’ve done it.”

Apart from the bank’s restructuring, lawmakers were looking at a number of other bills including one setting up an “Investment Solidarity Fund” and restricting banking transactions in times of crisis.

Together, they will make up at least part of the alternative plan Cyprus hopes will secure it the bailout money.

A vote on the bills was scheduled for Friday morning, but that appears to have been pushed back …read more
Source: FULL ARTICLE at DailyFinance

News, Politics, Government

European Central Bank gives Cyprus 4 days to find bailout solution

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Cyprus has four days to agree on a new plan to raise funds to avoid bankruptcy, with the European Central Bank warning Thursday it will pull the plug on the country’s banks at the start of next week if no solution is found.

Facing the ultimatum, the Cypriot government was racing to cement a new package that will please both Parliament and the country’s potential international creditors.

Party leaders met with the president to consider a range of measures that could raise the 5.8 billion euros ($7.5 billion) needed to qualify for 10 billion euros ($12.9 billion) in rescue loans from the eurozone partners and the International Monetary Fund.

One measure agreed on Thursday was the creation of an “Investment Solidarity Fund” that would appeal for donations from ordinary Cypriots, businessmen and foreign investors, said Demetris Syllouris, head of a small right-wing party who was in the meeting with the president.

The legal and technical details were still being worked out, and the bill would be reviewed by the Cabinet Thursday evening, government spokesman Christos Stylianides said.

A “Plan B” was being hashed out after lawmakers soundly defeated an earlier proposal to seize up to 10 percent of all domestic deposits to raise the 5.8 billion euros.

The rest of the “Plan B” will include restructuring Cyprus‘ troubled banks, some form of Russian help, dipping into pension funds and taking up an offer from Cyprus‘ wealthy Orthodox church to contribute. Some form of tax on bank deposits is also possible.

“We will have a program of support for Cyprus by Monday,” central bank governor Panicos Demetriades said as he left a meeting with the country’s president and political party leaders.

However, it seemed unlikely a deal would be reached in time for a vote during Parliament’s regular Thursday session.

“Today, no, I don’t think so,” said Averof Neophytou, deputy head of the governing DISY party, when asked if a deal could be reached and voted on by the evening.

Russia is likely to pitch in, though its contribution will be smaller than originally hoped for, Cypriot officials have said. Nearly a third of the 68 billion euros ($88 billion) in deposits in Cyprus‘ oversized banking sector are held by Russians.

Cyprus‘ finance minister, Michalis Sarris, has been in Moscow since Tuesday seeking to forge a deal.

Russia‘s help would not be a loan, but rather some form of an investment, Sarris told Cypriot state broadcaster CyBC on Thursday. He is due to meet with his Russian counterpart, Anton Siluanov, and the Russian energy minister later in the day.

Russia news agency ITAR-Tass quoted him as saying that “we are discussing the subjects of gas, bank cooperation and other subjects.” Cyprus has recently discovered significant off-shore gas deposits, and major energy companies have shown an interest in tapping those resources.

With indications that the new plan will include restructuring Cyprus‘ troubled second-largest lender Laiki Bank, angry lines of people formed at some of the bank’s ATMs in the center of the capital.

Banks have been shut since last Friday, and are to remain so until next …read more
Source: FULL ARTICLE at Fox World News