Updated 22/03/2013
It looks like the situation is coming to an end today with the government setting out measures to restructure banks whilst protecting depositors.
One such agreement that has been reached is that Greece are taking control of assets and branches of Cypriot banks based in Greece.
Proposals have been put forward to split Laiki Bank in order to limit depositors exposure and protect the 100,000 guarantee. Whilst there are going to be capital controls it has been stated that this is everyone’s interest to stop a panic run of money and so further protect depositors. The restructuring of Laiki bank is thought to raise 2.7bn and there is optimism that this will be passed.
These measures are needed in order to reopen the Cypriot banks which have now been closed for one week.
The President and Government are in hard negotiations with Troika. The government has already submitted its bills, which it believes is the best solution for this difficult situation.
It is rumored that the vote will take place this afternoon allowing the finance minister time to return and update on his trip to Russia.
The banks are expected to open next Tuesday by which time it should be clear what measures have been taken to restore the bailout and stabilize Cyprus banking.
Chesterfield will continue to monitor the situation and update you when it is clear what these measures are.
Updated 21/03/2013
The Cyprus parliament are working on a solution to the crisis with the EU which has followed since they have voted against imposing a levy upon depositors in order to secure a bailout from the EU and International Monetary Fund.
The decision has been made to keep Cyprus Banks closed until the legal position of an acceptable plan is put in place to secure deposit holders position and stabilize the sector.
Cyprus is in top level talks with Russia to extend the existing 2.5bn loan from Russia and perhaps secure additional investment. Cyprus is officially recognized as the third largest investor in the Russian economy mainly due to Russians use Cyprus banks accounts to take advantage of the low tax and commercial regulation and then funding investments in their homeland. Russian investors account for about a third of Cyprus deposits including the presence of Russian Commercial Bank, the Cypriot auxiliary of Russia’s second largest bank VTB.
There have also been rumors centered around a deal with Russia for stakes in offshore gas fields and Cypriot banks. Gas fields discovered off the coast of Cyprus in 2011 could be worth many times the Cyprus GDP. Most of this speculation has fallen upon Gazprom although a spokesperson for the firm has said that there have been no firm proposals.
There is still much hype surrounding raising money from domestic sources such as provident funds and restructuring of the banks and the Cypriot cabinet is said to be discussing ideas including the nationalization of pension funds and semi-government corporations although no firm proposals have been reported.
At this time there is no definite plan of action coming from the Cypriot government to deal with this crisis, but Chesterfield will continue to monitor the situation and update you as it unfolds.
Updated 20/03/2013
The Cyprus parliament met last night to vote on the proposed levy. The levy which has been revised several times proposed to exempt savers with less than 20,000 Euros, but to tax 6.7% on deposits in Cyprus banks of between 20,000-100,000 Euros and 9.9% on deposits for those above 100,000 in an effort to raise the expected 5.8bn which is a proposed condition for the 10bn bailout from Europe and the International Monetary Fund.
Parliament has overwhelmingly rejected the deal with 36 MPs voting against it, 19 abstaining and none in favor.
President Nicos Anastasiades who has been president of Cyprus for less than one month has made it clear to the Cyprus people and the EU that other possibilities to raise the necessary amount are being explored.
Russian deposits account for about a third of all deposits in Cypriot banks. Finance Minister Michalis Sarris has flown to Moscow in order to extend the repayment of the €2.5bn loan Russian granted Cyprus in late 2011 and look to seek further investment into the country from Russia. Analysts have also said that Russia may provide more funding in return for interests in Cyprus’s offshore energy fields.
Bank structuring and bond issue are also being explored as possible options.
Cyprus’s Orthodox Church which is a major shareholder in Hellenic Bank has also offered to help. The Archbishop Chrysostomos has said that the Church is willing to mortgage its assets and invest in government bonds.
Chesterfield is monitoring the situation closely and has developed strategies and options for its clients depending on the outcome .
19/03/2013
Cyprus Banking bailout is a very hot topic in the news and the position is fluid and is changing by the hour. The levy on depositors as a contribution to the bailout is that first time depositors are expected to contribute under the EU bailout terms. At Chesterfield we are keeping our clients informed as the position changes and our technical team are studying each proposal so as options for our clients are prepared to take advantage swiftly as soon as the final regulations come into force.
As matters drag on this is particularly potentially very damaging to the Cyprus economy as Cyprus has prided itself on attracting foreign investment through low tax and commercial regulation. In particular investment from Russia and China is credited with Cyprus’s banking sector being such an important part of the Cypriot economy.
Russia are inflamed by this move which they see as dangerous intervention by the EU and IMF against normal banking covenants. They have a lot of investment and strong financial ties with Cyprus and the EU, they claim have agreed this move without involving Russia. This lack of coordination with Russia could affect the restructuring of the further €2.5 billion loan which Cyprus is supposed to be receiving from Russia.
Cyprus is one of seventeen countries that use the Euro currency. This bailout has left a word wide ripple as stock markets in the US, Asia and Europe fell due to the uncertainty surrounding the Euro which makes up the world’s second largest economy.
There are also fears that other European countries such as Spain and Italy which are also facing banking problems might try a similar levy.
There is talk of incentives and compensation to protect the future investment in Cyprus by offering shares in the banks or returns from the countries gas resources.
The proposed levy has taken away confidence of depositors and resulted in anger.
Not all reaction to this levy has been completely negative. Whilst no-one is happy with their money being taken from their banks which many are referring to as theft, a percentage of people living in Cyprus do recognize that Cypriot banking would benefit from a fair levy.
We are monitoring the position and will be writing more as it becomes clear on what exactly the proposals will be and what this will mean for Cyprus depositors. In the meantime feel free to contact our offices for further information and solutions.
