Cypriots Stunned by Forced Savings Cuts

[don]

Re: Madonna's Holiday (with a little help)

Questions on the Cyprus Event:

banks runs?

KGB black money raided in Cyprus? If so, what are the consequences?

wither gold - can price suppression continue?

a fiat flight to where - the dollar?

will this kick-start FIRE's global rationalization to another level?

[GRG55]

Re: Madonna's Holiday (with a little help)

I was reading a forum comment on another site that said there is going to be an emergency cabinet meeting by Cyprus politicos on Sunday.

Q1) Assuming, they don't/can't/won't somehow undo this, what do you think are the odds of the start of a full blown bank run in Spain, Portugal, Italy next week as the news spreads?

The politicians, ECB, IMF will be doing everything they can to talk down the chances of that. They didn't make this move in Cyprus blindly...and surely would have considered the consequences. If necessary, under a worst case situation, they will close all the banks in any country suffering a run...they've had plenty of time since this financial crisis started to think this through and plan the contingencies. The smart money has been seeking safety since 2007/08...the really smart money (EJ et al) even earlier than that...

Q2) What is the precedent for government action in the face of some significant percentage of probability of an upcoming bank run? These are serious questions, I have a large family in Portugal. Thanks.

The need to be selective about which financial institutions to which one entrusts money has been in place for at least 5 years or more. There seems more than ample precedent, all around the world, that the politicians will almost always protect their precious banking systems above everything else. The Cyprus action is being described as taking money from Russians illegally holding money in offshore companies and accounts. That may be, but I suspect there are damn few Russian accounts in Cyprus that hold less than 100k. If you are a Cypriot with a small amount of savings in a local bank it's like being conscripted into the army...everybody gets a haircut...

...How come the Euro hasn't taken a hit yet with this news?

The timing of the announcement at the start of a 3 day weekend wasn't a coincidence. Could be a higher demand for physical Euro notes next week, and I wonder how that might influence the exchange rate...

[BadJuju]

Re: Madonna's Holiday (with a little help)

Cyprus's parliament has postponed until Monday an emergency session to vote on a levy on bank deposits after signs that lawmakers might block the surprise move agreed in Brussels to help fund a bailout and avert national bankruptcy.
In a radical departure from previous aid packages, euro zone finance ministers want Cyprus savers to forfeit up to 9.9 percent of their deposits in return for a 10 billion euro ($13 billion) bailout to the island, which has been financially crippled by its exposure to neighboring Greece.
The decision, announced on Saturday morning, stunned Cypriots and caused a run on cashpoints, most of which were depleted within hours. Electronic transfers were stopped.
The move to take a percentage of deposits, which could raise almost 6 billion euros, must be ratified by parliament, where no party has a majority. If it fails to do so, President Nicos Anastasiades has warned, Cyprus's two largest banks will collapse.
One bank, the Cyprus Popular Bank, could have its emergency liquidity assistance (ELA) funding from the European Central Bank cut by March 21.
A default in Cyprus would threaten to unravel investor confidence in the euro zone that has been fostered by the European Central Bank's promise last year to do whatever it takes to shore up the currency bloc.
A meeting of parliament scheduled for 10.00 a.m. ET on Sunday was postponed for a day to give more time for consultations and broker a deal, political sources said. The levy was scheduled to come into force on Tuesday, after a bank holiday on Monday.
BREAKS A TABOO
Making bank depositors bear some of the costs of a bailout had been taboo in Europe, but euro zone officials said it was the only way to salvage Cyprus's financial sector, which is around eight times the size of the economy.
European officials said it would not set a precedent.
In Spain, one of four other states getting euro zone help and seen as a possible candidate for a sovereign rescue, officials were quick to say Cyprus was a unique case. A Bank of Spain spokesman said there had been no sign of deposit flight.
The crisis is unprecedented in the history of the Mediterranean island, which suffered a war and ethnic split in 1974 in which a quarter of its population was internally displaced.
Anastasiades, elected only three weeks ago, said he had no choice but to accept the euro zone's aid terms.
"We would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis," Anastasiades said in a statement.
With a gross domestic product of barely 0.2 percent of the bloc's overall output, Cyprus applied for financial aid last June, but negotiations were stalled by the complexity of the deal and reluctance of the island's previous president to sign.
International Monetary Fund Managing Director Christine Lagarde, who attended the meeting, said she backed the deal and would ask the IMF board in Washington to contribute to the bailout.
RUSSIANS, EUROPEANS
The proposed levies on deposits are 9.9 percent for those exceeding 100,000 euros and 6.7 percent on anything below that.
They would be compensated with shares in the banks. A political source told Reuters that, as a sweetener, Anastasiades would offer depositors equity returns, guaranteed by future natural gas revenues.
"Half of the value of the haircut will be guaranteed by natural gas proceeds," the source told Reuters.
Cyprus is expecting the results of an offshore appraisal drilling this year to confirm the island is sitting on vast amounts of natural gas worth billions.
Those affected will include rich Russians with deposits in Cyprus and Europeans who have retired to the island, as well as Cypriots themselves.
"I'm furious," said Chris Drake, a former Middle East correspondent for the BBC who lives in Cyprus. "There were plenty of opportunities to take our money out; we didn't because we were promised it was a red line which would not be crossed."
"I've lost several thousand," he told Reuters.
British finance minister George Osborne told the BBC on Sunday that Britain would compensate its about 3,500 military personnel based in Cyprus.
Anastasiades's right-wing Democratic Rally party, with 20 seats in the 56-member parliament, needs the support of other factions for the vote to pass. It was unclear whether even his coalition partners, the Democratic Party, would fully support the levy.
Cyprus's Communist party AKEL, accused of stalling on a bailout during its tenure in power until the end of February, was likely to vote against the measure. The socialist Edek party called EU demands "absurd".
"This is unacceptably unfair and we are against it," said Adonis Yiangou of the Greens Party, the smallest in parliament but a potential swing vote.
Many Cypriots, having contributed to bailouts for Ireland, Portugal and Greece - Greece's second bailout contributed to a debt restructuring that blew the 4.5 billion euro hole in Cyprus's banking sector - are aghast at Europe's treatment.
Cyprus received a "stab in the back" by its EU partners, the daily Phileleftheros said.
But it and another newspapers highlighted the danger of plunging the banking system into further turmoil if lawmakers sat on the fence.
"Even if the final agreement is wrong, if this is not approved by parliament the damage will be even greater," Politis economics editor Demetris Georgiades said in an editorial.

[GRG55]

Re: Madonna's Holiday (with a little help)

Questions on the Cyprus Event:

banks runs?

KGB black money raided in Cyprus? If so, what are the consequences?

Had a long discussion about this over dinner with my Swiss financier partner last night. Direct consequences...probably none. Russian money (and girls) stashed everywhere. London, here in the Gulf in Dubai and Bahrain, Switzerland. Cyprus just part of the network...so 10% of 10% unlikely to cause a visible consequence. Underneath the table? That's another matter.

wither gold - can price suppression continue?

a fiat flight to where - the dollar?

I would expect more Europeans to prefer more Euro cash now. That is what they have to pay their bills in. Any Cypriot grandmother that didn't trust the banks and had her Euros wrapped in a bit of Lefkara lace and tucked away is better off today than her more educated and worldly neighbours. Certainly this doesn't hurt the case to hold a bit of physical gold as insurance...

will this kick-start FIRE's global rationalization to another level?

Same partner told me that the unemployment rate among financial sector workers in the canton of Geneva is now an unprecedented 10%. The rationalization is well underway and shows no signs of abating quite yet it would seem...

[don]

Re: Madonna's Holiday (with a little help)

"The Cypriot cabinet has declared Tuesday a bank holiday, for fear of capital flight, and this may even be stretched to Wednesday, as depositors are certain to withdraw huge sums from the Cypriot banks after the haircut imposed."

[don]

Re: Madonna's Holiday (with a little help)

As the President of Cyprus proclaims to his people that "we' should all take responsibility as his historic decision will "lead to the permanent rescue of the economy," it appears that the settled-upon 9.9% haircut is a 'good deal' compared to the stunning 40% of total deposits that Germany's FinMin Schaeuble and the IMF demanded. This action, his statement notes, enables the rescue of 8,000 banking sector jobs and ensuring the liquidity of the banks, "allowing the economy to proceed decisively to a new beginning." Ekathimerini reports," this is the first time in the eurozone that a levy has been imposed not on the interest of bank accounts but on the capital itself," and was the only way to bridge most of the the gap between the EUR17bn Nicosia needed and the EUR10bn the ESM was offering, though tax on interest in Cypriot banks will also rise to 20-25%. It is the 40% haircut requirement that concerns us the most as clearly going forward that means other nations, starting Monday (or Tuesday given national holidays) see deposit outflows surge, as the willingness to take such steps is now painfully clear.

Zerohedge

[GRG55]

Re: Madonna's Holiday (with a little help)

Questions on the Cyprus Event:

banks runs?

...

"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works".
-- John Stuart Mill

[don]

Re: Madonna's Holiday (with a little help)

"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works".
-- John Stuart Mill

Making the Cyprus Event the starter's pistol for our marathon to a brave new world . . .

[Chris Coles]

Re: Madonna's Holiday (with a little help)

The part that intrigues me is the sum of the difference between what was needed to bail out their banks and the sum that is, was, available to do that. What this signals to me is the ECB is running out of funds.

So they have thought this all through? Now we will see the law of unintended consequences full on.

One must assume that an attempt to withdraw funds will be blocked; but can they block a normal purchase made through an internet account for the likes of physical Gold with such as Bullion Vault?

[doom&gloom]

Re: Cypriots Stunned by Forced Savings Cuts

And scantly more than two weeks ago, the president of Cyprus had said:

"The new president dismissed any suggestion that Cyprus should entertain a haircut on its bank deposits as some in Europe have suggested. 'This does not constitute evidence of solidarity and any reference to a haircut on deposits or public debt is not accepted. Similar issues are not up for discussion.'"

From http://www.globalpost.com/dispatch/news/afp/130228/new-cyprus-president-vows-stop-economic-slide

'When it gets serious, you have to lie...'

[Chomsky]

Re: Cypriots Stunned by Forced Savings Cuts

The decision to exact such large chunk of flesh from the middle class was made in order to protect Cyprus's tax haven status. The top rate was capped below 10% for this reason, and the difference taken out of the hides of ordinary savers. Sickening.

“We had proposed a levy with a rate of zero below €100,000, and a higher one afterwards,” said the official. “The Cypriot president did not want to agree to a levy higher than 10 per cent, and if you do the numbers you get the 6.75 and 9.9 [per cent].”

Cypriot authorities in revised deal talks

By Peter Spiegel in Brussels and Kerin Hope in Nicosia


©AFPPeople withdraw money in Nicosia on Sunday

Cyprus’ embattled president was on Sunday in talks with Brussels and political rivals to ease the terms of a planned levy on smaller deposit holders as he tried to scrape together a parliamentary majority for a €10bn bailout for the debt-laden island.

President Nicos Anastasiades is still intending to raise €5.8bn from Cypriot bank accounts to help fund the bailout, an unprecedented move by the eurozone that could yet spark wider concern about the safety of bank deposits in the bloc.

Cypriot authorities were weighing an additional bank holiday on Tuesday pending emergency parliamentary ratification of the deal which would mitigate the danger of a bank run.

However, a revised deal being discussed in Nicosia, with the blessing of the European Commission, would shift more of the burden on to deposits larger than €100,000, according to officials involved in the talks.

Under a controversial deal struck with international bailout lenders in the early hours on Saturday, a 6.75 per cent levy would be imposed on all deposits under €100,000 while accounts over that threshold would be hit with a 9.9 per cent levy. The depositor levy was demanded by a German-led group of creditor countries to bring down the bailout’s price tag from €17bn.

The parliamentary passage of the levy is hanging in the balance. Several lawmakers from the Democratic party, the junior partner in the governing coalition, have threatened to vote no. The government controls only 28 of 56 seats in the chamber and is seeking backing from two deputies from a small pro-European party.

In a television address Mr Anastasiades appealed to Cypriots to accept the levy as the “least painful solution”.

“Cyprus is in a state of extreme emergency,” he said. “These are the most tragic events we have faced since 1974”, when the Turkish military intervention following a Greek-inspired coup split the island and triggered an economic collapse.

He asked political parties to back the levy in Monday’s vote “and decide in favour of our citizens and our national interests”.

“This solution is not what we wanted . . . but it leaves the running of the economy in our hands,” he said. “And it opens the road to recovery and prosperity.”

He said depositors would be offered bank shares covering the full amount of their losses, while those who left their savings in banks for another two years would be rewarded with bonds backed by future income from exploiting Cyprus’s natural gas deposits.

EU officials, including a European Central Bank delegation sent to the island on Saturday, were pushing political leaders hard to accept the deal, warning that without it ECB funding keeping the country’s second-largest bank alive would stop and the financial sector could collapse.

“The ECB officials were very blunt,” said one Cypriot official familiar with the discussions. “There are serious fears of contagion regarding Italy and Spain if this legislation doesn’t go through.”

Eurozone officials have insisted the Cypriot situation is unique and deposit haircuts would not be used elsewhere.

Officials involved in Sunday night’s talks said the changes in the levy’s rates were in flux, but they could see the higher rate increase to as much as 12.5 per cent while the smaller deposits could be about 3.5 per cent.

Olli Rehn, the European Commissioner in charge of economic affairs, told the Financial Times that bailout lenders would not object to a shifting of the burden. “If the Cypriot political leaders decide on a more progressive scale for the one-off levy for the sake of social fairness, and if this has the same financial impact, the commission is ready to recommend that the eurogroup endorse such a decision.”

According to senior officials involved in the talks, the German-led group of negotiators who insisted on the bank levy were agnostic as to where the axe fell. They said Mr Anastasiades, with the backing of the commission, had resisted a rate higher than 10 per cent out of fear it would destabilise the financial sector even more.

One senior eurozone official said the ECB and other EU negotiators at one point suggested putting all the burden on larger depositors.

“We had proposed a levy with a rate of zero below €100,000, and a higher one afterwards,” said the official. “The Cypriot president did not want to agree to a levy higher than 10 per cent, and if you do the numbers you get the 6.75 and 9.9 [per cent].”

Cypriot officials insisted no levy on smaller depositors was impossible. One senior Cypriot official involved in the talks said that because about 35 per cent of all deposits are below the threshold, exempting them would mean a rate so high for the rest that it would no longer be viewed as a tax.

“If this is successful then it will be used in the future,” said the dejected official, predicting Spanish and Italian banks could face similar levies. “If this is not successful then who cares about Cyprus.”

Archbishop Chrysostomos, the island’s influential spiritual leader, called for Cyprus to leave deposits intact, leave the eurozone and readopt its former currency, the Cyprus pound.

Additional reporting by Andreas Hadjipapas in Nicosia

http://www.ft.com/intl/cms/s/0/a2eac...#axzz2Nq94X55O

[Chomsky]

Re: Cypriots Stunned by Forced Savings Cuts

And some lucid thoughts by Edward Harrison:

http://www.creditwritedowns.com/2013...in-cyprus.html

[don]

Re: Cypriots Stunned by Forced Savings Cuts

MSM predictable front-page take

Cypriot Bailout Sends Shivers Throughout the Euro Zone

By LANDON THOMAS Jr. and LIZ ALDERMAN

LONDON — Europe’s decision to force depositors in Cypriot banks to share in the cost of the latest euro zone bailout has sparked outrage in Cyprus and fears that a run on deposits over the weekend might spread to larger countries at risk like Spain and Italy.

Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than 100,000 euros, or $130,000, effective Tuesday. That will hit wealthy depositors — mostly Russians who have put vast sums into Cyprus’s banks in recent years. But smaller deposits will also be taxed, at 6.75 percent, meaning that the banks will be confiscating money directly from retirees and ordinary workers to help pay the tab for the 10 billion euro bailout or $13 billion.

Most of the 10 billion euros will go to bail out Cypriot banks, which took a blow when their substantial holdings of Greek government bonds were written down as part of that country’s second bailout. The island’s banks are also laden with loans made to Greek companies and individuals, which have turned sour as Greece endures its fourth year of economic and financial crisis.

The deposit tax, which is expected to raise 5.8 billion euros, was part of a bailout agreement reached in the early hours of Saturday morning after 10 hours of talks among finance ministers from euro countries and representatives of the International Monetary Fund and the European Central Bank.

The Cypriot bailout follows those for Greece, Portugal, Ireland and the Spanish banking sector — and is the first where bank depositors will be touched.

Public officials in Spain and Italy did their best over the weekend to portray the situation in Cyprus as unique, and to insist that deposits in those countries remained safe.

The economy of Cyprus represents not even half a percent of the combined output of the 17 countries that use the euro. Yet the impact of this weekend’s unexpected decision in Brussels to impose across-the-board losses on bank depositors could not be more far reaching.

After five years of bailouts financed largely by austerity-weary European taxpayers, wealthy nations like Germany and the Netherlands have decreed that from now on when a bank or country fails, it will be bond investors and perhaps even bank depositors who will be forced to pick up a big share of the bill.

The measure to tax depositors has created considerable political turmoil for the newly elected Cypriot president, Nicos Anastasiades, who asked Parliament on Sunday to postpone an emergency vote until Monday amid signs that a majority of the legislature’s 56 lawmakers would not approve it. That puts the entire aid package of 10 billion euros in jeopardy.

The European Central Bank sent two representatives to Nicosia on Saturday to assure executives of Cypriot banks that the central bank was “here for them — as long as the bill goes through Sunday or Monday morning, before financial markets in Europe open,” said Aliki Stylianou, a press officer for the central bank of Cyprus.

Mr. Anastasiades’s cabinet met at the presidential palace Sunday with the heads of the Cypriot central bank and the Finance Ministry to discuss how to implement the assessment, should Parliament approve it.

The government also extended a bank holiday that was put in place to try to stop a run on the banks. The holiday was supposed to end Monday night. Now, banks will not be opening their doors Tuesday, as planned. There was talk that they might not open Wednesday, either.

To some degree, this policy shift was foreshadowed last month when the Netherlands forced investors of a failing Dutch bank to pay for their share of its government bailout by writing 1.8 billion euros worth of high-risk bonds down to zero. The strategy was the work of Jeroen Dijsselbloem, the doctrinaire finance minister of the Netherlands, who was recently tapped to lead the Eurogroup, the body of euro zone finance chiefs that organized the Cyprus bailout.

But it is one thing to wipe out bondholders, who presumably were aware that their investment carried risk. It is quite another to force a loss on depositors, including small Cypriot savers whose deposits were insured by the very government that will now try to seize part of the balance in the form of a one-time tax.

“This is the first time that senior creditors have taken a loss in a euro zone bank rescue,” said Adam Lerrick, a sovereign debt expert at the American Enterprise Institute who has long argued that debt-heavy countries in Europe must make private investors — including bank depositors, if need be — share the cost of bank bailouts. “It prevented the insolvency from being transferred from the banking system to the government.”

While such a notion may please the purists, it carries with it significant financial risks. Indeed, as many Cypriots flocked to remove what little of their savings they could, Europe must now confront the prospect that jittery savers in Spain and particularly Italy — where banks have been hit hard by an onslaught of loan losses — will rush to do the same.

The bank depositors in those countries, and the banks’ bondholders, will no doubt be edgy. Deposits could flee those countries, as they did Greece and Spain last year, at the height of their fiscal troubles.

The result could create a new wave of investor contagion in the euro area that will challenge the European Central Bank head, Mario Draghi, to make good on his promise to do whatever it takes to protect the euro.

Economists warn that the shock to Cyprus could lead not only to bank runs in other euro zone countries, but an economic collapse on a par with what happened in Greece. That country required not one bailout, but two, as policy makers underestimated the extent to which the Greek economy would suffer from the austerity measures imposed by the government, which were a requirement to receive those bailouts.

“There has been a huge shock, and fall in G.D.P. will be very large just as it was in Greece,” said Alexandros Apostolides, an economist based in Nicosia. “Why would someone keep their deposits in a bank here if he cannot be assured that there will not be another bailout?”

Indeed, throughout the weekend many Cypriots were withdrawing as much as they could from bank cash machines before the special tax could be imposed.

“Why should I leave my money in Cyprus?” said an investment banker who for the previous two days was withdrawing the maximum €2,000 he is allowed to from his foreign bank account in Nicosia. “I have already instructed my bank to send my entire savings to London when the banks open on Tuesday. A precedent has been set — what is to stop them from doing this again?”

Stelios Platis, the managing director of MAP, a Cyprus-based financial services firm and a former economic adviser to Mr. Anastasiades, said the effect would be the same “whether the Parliament approves the measure or not.”

“As soon as banks in Cyprus reopen, people will rush to take all their money out, because they don’t believe this is a one-off deal,” he said. “When a bank run happens, the E.C.B. will have to pump in liquidity,” he added, “and what you will have is a shell of a banking system supported by E.C.B.-eligible Cyprus bonds, which will rocket the debt of Cyprus out of control.”

More than perhaps any other euro zone member, Cyprus had become dependent on the ability of its many banks to offer clients around the world high-yielding, lightly taxed savings accounts. The strategy was so successful that overall bank deposits had grown to more than three times the size of the economy.

Of the roughly 70 billion euros in deposits on the island, analysts estimate that half this amount represents large, uninsured depositors — with Russians making up more than 20 billion euros of this amount.

The other 35 billion euros comprises government-insured deposits from Cypriots.

In Nicosia, the lines at cash machines Saturday disappeared temporarily, mainly because A.T.M.’s had been drained. But on Sunday, at a main branch of Laiki Bank, employees were seen inside the darkened building hovering over computers and filling machines with cash.

As word got out, groups of people arrived in a steady stream to withdraw money. Many expressed anxiety over what they said were dictates from Brussels and Berlin that would have implications far beyond Cyprus’s shores.

“They are trying to make an experiment with a small country,” said Stefan Kourbelis, a manager at the Centrum Hotel in Nicosia’s main square, echoing a widely held view. “If it works, the next one could be Spain, Italy and others. If things go badly, they can just say, ‘Who cares about Cyprus?”’ he said.

NY Times: Liz Alderman reported from Nicosia and Landon Thomas Jr., in London.

[Adeptus]

Re: Cypriots Stunned by Forced Savings Cuts

Thanks for the reply GRG55.

@don - "They are trying to make an experiment with a small country,” said Stefan Kourbelis, a manager at the Centrum Hotel in Nicosia’s main square, echoing a widely held view. “If it works, the next one could be Spain, Italy and others. If things go badly, they can just say, ‘Who cares about Cyprus?”’ he said."
One has to wonder if they are that stupid as to imagine this would work more than once. I'd bet nearly all my money that if they try this a second time somewhere else in Euro, that there will be massive bank runs.

In regards to why the Euro hadn't moved yet... well, it finally did.. 1 cent gap down. ~440 Million people just got poorer by ~0.7%. Thanks Cyprus/Troika etc..

[vt]

Re: Cypriots Stunned by Forced Savings Cuts

Looks like S&P could open down 30, and dollar up Monday.

http://www.zerohedge.com/news/2013-0...-sp-open-30pts