JPMorgan Asks "Has Europe Bazookaed Itself In The Foot", Answers "Yes"

Tyler Durden's picture

When even JPM says to panic, it may be time to panic. And then we ask why is all of this happening right now, why is even JPMorgan advocating a risk-off posture, and then we recall that every single year in late March, early April Europe comes back front and center with a bang, just as we forecast in "It's Deja Vu, All Over Again: This Time Is... Completely The Same" and then everything becomes very clear.

From JPM's Alex White:

Significant near-term risks after flawed Cypriot deal

  • Significant chance that Cypriot Parliament votes ‘no’ (30%) or has to further delay the vote (40%)
  • Either outcome would be highly problematic, highlighting regional stresses
  • President to address MPs on Monday at 9.00am GMT. Earliest likely time for vote late afternoon GMT.
  • This could be pushed back significantly
  • A delayed vote could require an extended bank holiday in Cyprus to avoid broader bank run
  • Regional contagion impacts should be containable, but risks unclear with new precedents set

It is difficult to over-state the extent of popular anger in Cyprus over the bailout deal which was pulled together on Friday evening. The deal includes €10bn of support from the Troika, as well as a depositor haircut, to be implemented through the introduction of a ‘stability levy’ of 9.9% on deposits over €100,000 and 6.75% on smaller deposits. Cypriot depositors with savings nominally below the European deposit guarantee threshold (€100,000) appear to have been squeezed between the policy interests of their major external partners; including Germany and Russia.
In insisting on a depositor haircut, the Eurogroup appears to have reflected the realities of German domestic politics (where the Cypriot package has been turned into an electoral battle-ground, in part as a consequence of SPD pressure). In agreeing to a levy on small depositors, as opposed to simply those with deposits above the guarantee threshold, the Cypriot Government also appears to have bowed to additional political pressure from those constituencies with large Cypriot deposits (including Russia). The total quantum of insured deposits in Cyprus is around €30bn, while uninsured deposits (i.e. deposits above €100,000) total €38.4bn. It would therefore have been possible to raise the total required (around €5.8bn) with a levy of 15.4% on the uninsured deposits; a path which the deal avoids in favour of more socialised pain. The result is highly problematic in the near-term, in our view.
Cyprus could vote ‘no’

As with other packages, the Cypriot bailout proposal needs to be approved by the ESM members, through a parliamentary ratification process, which could present some difficulties in Germany and elsewhere (with votes likely in April). The near-term challenge - securing domestic Cypriot approval – appears far more potent however. The parties which nominally provide support to President Anastasiades have a majority of one in parliament, and the opposition Communists (AKEL) have already given a clear indication that they will vote against. The extent of depositor pain, and the strength of public reaction, has pushed other parties in AKEL’s direction. We think the Government can be reasonably confident of only around 26-28 votes at the most (with risks to the downside), while the opposition may be confident of around 26. In total, 29 votes are needed for a majority in the 56 member parliament. Our best estimates of a potential vote have it too close to call at this stage (Evroko, a pro-European centrist group which has given differing indications, may be the swing party).

The ECB, and others within the Troika, have put intense pressure on the Cypriot Government to vote on the measures before the market opens on Monday; only to have President Anastasiades make clear that he does not yet have the numbers. We think there is a material risk of the vote failing if brought before parliament. Given the small size of the Chamber, parliamentary managers are likely to have a good idea of a potential result and might choose to delay a vote still further if they don’t have the numbers by Monday evening. Given the importance of having an agreement in place before Cyprus’ banks open their doors, this leaves open the possibility of an extended bank holiday (possibly through the week).
What if?

A ‘no’ vote, or a failure to bring the package before parliament in the immediate term could have significant regional implications. Germany has made clear that it won’t bring any measure which does not include depositor haircuts before the Bundestag. The extent to which the region has played hard-ball with Cyprus was indicated in Anastasiades' claim that he was threatened with an immediate withdrawal of ELA support if he did not commit to the deal as it stands. In the event of a need to renegotiate, the path of least resistance in our view would probably see an amendment of the existing deal, such that the pain is redistributed to impact uninsured depositors (we think there is a chance of the Cypriot Government seeking to amend the terms in this direction before bringing measures to parliament if it faces the prospect of failure). In effect however, the damage would already have been done if Cyprus sees significant deposit flight, absent a deal. In the context of the Troika’s current disagreement with Greece on further disbursements, and the likelihood of political dead-lock in Italy, a return to a more stressful episode of the European crisis cannot be discounted, in our view. Should these hurdles be passed, longer-term we think there is a possibility of legal challenge to the package, under both Article 23 of the Cypriot Constitution, and under the European Convention of Human Rights (ECHR) given the requirements of both in respect of property rights.
Has Europe bazookaed itself in the foot?

Even if we avoid a negative outcome this week, events in Cyprus invite broader questions about the region’s commitment, repeated ad nauseum since June to ‘break the feedback loop between sovereigns and banks’. The IMF warned as recently as Friday that the Euro area lacked an effective deposit guarantee framework (before agreeing to a haircut that adroitly proves its point). The Cypriot package reinforces the fact that existing deposit guarantee schemes are only as strong as the sovereign which backs them; something which is unlikely to go unnoticed in the rest of the region (although we think specific contagion risks are limited near-term). Other EU member states will likely be affected, there are significant numbers of UK depositors in Cypriot banks, some of whom the UK has now promised to protect (with echoes of the Icesave situation), and some potential contagion channels may not be obvious. It is notable that German policy-makers have been insisting on Cyprus’ significant ‘systemic relevance’ over recent days while pushing a package that may test it.

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SoundMoney45's picture

The ECB, IMF, and EU order Cyprus to confiscate 7 to 10% of bank deposits in exchange for a carriage return from the ECB.  

toys for tits's picture

If every person in Europe pulled 1000 Euros from their accounts, that is a 3.33 trillion dollar hit.  

The idiot Euro leaders have just triggered a run of epic proportions, IMO. We'll see in on Monday.

thisandthat's picture

If every person in Europe had 1000 € disposable, Europe wouldn't need that money to start with...

bania's picture

I'd expect JPM to ask if "...Europe has Harpooned Itself..." but I guess that's just semantics.

Long_Xau's picture

No wonder the ones who use the noob tube are noobs and self-pwn themselves spectacularly every time by shooting themselves in the foot. This is not Quake, there's no rocket jumping here.

bonderøven-farm ass's picture



Lost My Shorts's picture

One thing no one seems to mention, not even JPM -- who are the bond holders who should have been wiped out before haircutting deposits?  How big are the bond holdings, and how much could that have contributed to the bailout gap?

fuu's picture

The Cyprus debacle kicked off within 48 hours of the US Senate saying JPM is a bunch of liars.

Just saying.

tooktheredpill's picture

what was that quote from The Usual suspects again?

smlbizman's picture

im guessing its the oil guys...with the ....9.9/10ths......


sunaJ's picture

JPM would like to cash in some of its CDS, please.  Owning markets can get expensive, you know.

andrewp111's picture

The bond holdings in Cyprus are too small, only 2 billion total, vs deposits of 68B. And they might get hit as well, as their participation is unclear.

Piranhanoia's picture

Isn't it ironic that JPM would say this?   Isn't it more likely they were in on the decision making to take the action?

SafelyGraze's picture

everybody just slow down and take a deep breath.

"euro zone officials said it was the only way to salvage Cyprus's financial sector.

European officials said it would not set a precedent.

officials were quick to say Cyprus was a unique case.

The crisis is unprecedented in the history of the Mediterranean island.

Anastasiades, elected only three weeks ago, said he had no choice but to accept the euro zone's aid terms."

That should settle it.

- it's the only way
- will not set a precedent
- is a unique case
- is unprecedented
- they have no choice

now eat your vegetables


SafelyGraze's picture

the article continues "The proposed levies on deposits are 9.9 percent for those exceeding 100,000 euros and 6.7 percent on anything below that."


hey editors! try again!

"the proposed levies are ONLY 9.9 percent over 100k e and A MERE 6.7 percent on the rest."


also please call them "voluntary levies"


toys for tits's picture



Like being charged sales tax without buying anything.

All Risk No Reward's picture

Except you did buy something - debt based money issued by a private cartel of itnernational bankster h*ll bent on robbing, looting and controlling the world!

Just because society doesn't know they bought it,doesn't mean they didn't buy it!

Debt Money Tyranny

BTW, "Europe" didn't do anything - see how slick the social engineer's are?  They want to hide the blame for this latest fiasco under a completely meaningless term "Europe."

Let me be accurate - Biggest Finance Capital, the definers and controllers of debt based money, did this to every day Cyprus citizens through the intermediary government they control to a very large degree.

The MAJORITY OWNERS of JP Morgan are one and the same, so a subdivision of Biggest Finance Capital, JP Morgan, is reporting on what another subdivision of Biggest Finance Capital, the Cypress government, is doing to the Cyprus people prey, all the while blaming it on "Europe."

Got that?

The con only works so long as you agree to let the establishment set the rules.

Pseudolus's picture

The Governor gave a nicely understated, but full forewarning of the "debt for equity swap" last December

His call for the bale-in is on page 19: "people who lend to such institutions know that theyre not lending to government with a guaranteed loan"


1. "Central Bank cooperation is alive and well"

- As it should be, they're nearly all subsidiaries. So I think he's referring to political impediments to cooperation

2. "my pension is safe with Roger in charge"

- Cryptic. I'm still thinking on this one

3. Ben & Mervyn are BFF's


ISEEIT's picture

What  everyone is missing though is the fact that these persons who make the contribution actually retain over 90% of what they had and so I'm pretty sure they actually got a good deal and hopefully at this point FORWARD the earth shall begin to heal and whatnot.


toys for tits's picture



Better yet they get stock in the struggling bank that they can trade around town for gas, groceries, and clothes.



I hope you were being sarcastic, because I was

DoChenRollingBearing's picture

Might not be a bad idea for Americans either to have $500 or $1000 more in CA$H on hand outside the banks.  Monday morning (USA time) indeed promises to be interesting.

fonzannoon's picture

Wait till Europe closes and watch that magic levitation settle in.

Or, this was needed to give us that 5% pullback so everyone can get in on Priceline and Facefart.

I don't see this being the real deal. Unless Italian/Spanish debt sell off hard and a big PD chokes on it. Then we get a nice whopper of a correction.


Freakin coincidence or what?

Deo vindice's picture

DoChen - It might be a better idea for Americans to operate as much as humanly possible outside the banking system, period. Savings deposits earn no interest so you might as well keep the cash on hand.

Ancona's picture

I'm with the Bearing on this one. This is extremely sketchy shit and looks bad for folks in Europe. What happens in Europe tends to shape the things to come in the USA, so get ready.

WVO Biker's picture

If the € dives big time on Monday, isn't that what will make the eurocrats happy?

Mario55's picture

Do your math, I think you are messed with the zeros. There are roughly 300 million people in Europe, not 3 billion 

andrewp111's picture

If every person takes out 10K Euros, that is a 3 trillion Euro hit.


Most EU citizens probably don't have 1000 Euros to withdraw, let alone 10000.

kaiserhoff's picture

Governments have a million ways to steal from ordinary people.  They use and abuse them all.

But when governments behave like gangsters, they should be treated like gangsters.

augustus caesar's picture

I always felt the Mafia acted just like miniature territorial governments. If you accept the premise that governments are organizations with monopolies on violence, then whose to say that when a group of men take that power for themselves and start extracting wealth through rent-seeking behaviour they are not acting as the sovereign of that street corner? I view the conflict between organized crime and government as a spat between competitors using violent means. If you remove the veneer of respectability and authority from government by concluding that it does not truly operate according to the people's wishes but instead in it's own self-interest then the conflict between organized crime and government is similar to the conflict between rival warlords looking to take possession of the land and more importantly the people's wealth.

bigyimmy007's picture

I've always thought the same thing about the gangs. Imagine, if government completely collapsed you'd still have different groups of thugs fighting for control. Sociopaths are always abound to aquire believers and control territory.

SafelyGraze's picture

the problem is that "bank accounts" have a feel of immediacy and access. even if you are limited to withdrawals of 100 euros or less.

a better way is to create pension accounts (like 401k) that don't allow you to withdraw from or to manage.

once you accept that you will be the passive recipient of some future "annuity", the funds have already been positioned for confiscation [that is, re-investment].

wise up, emu. call it a "future individual future financial security vehicle". announce that bank accounts will be re-invested in the vehicle, to safeguard the future financial security of all europeans.

then you can spend it as you want




icanhasbailout's picture

Call it a Future Investment Security Time Interval National Guarantee.

newworldorder's picture

These institutions have brought European Fascism out into the open. Let there not be any illusions going forward. The unelected Euro-Bankster elites are all wearing the fascist armband under the guise of European solidarity and collectivism.

We will have our answer in a few days as to whether the European continent lives under the rule of law or the rule of the banksters.


fonzannoon's picture

Thank god for JPM and their prudent investment team. I am sure they are hedged out the ass, or up their ass.

francis_sawyer's picture

They've got their Greek turned Jew man Jamie Douglas NeiderDIMON on the case...


He's a sneaky little shit...

fonzannoon's picture

"Doug Kass of Seabreeze Partners on Twitter predicted European stock markets could fall 3 to 4 percent on Monday, while the S&P 500 could fall 1.5 to 2 percent and Spanish and Italian 10-year yields could jump 15 basis points."

Oh nooees!!!!! The S&P would only be up 8% ytd!!!!

Interest rates drop!!!! whocodonone????

The great rotation? The bernak farts in the great rotation's face.

Nirp bitches. Eat it.

buzzsaw99's picture

Translation: they have no printing press.

derek_vineyard's picture

spx will open at all time highs

fonzannoon's picture

exactly right. I have emailed this to a few friends. They all say "they better not try that shit here".

I say, "they don't have to, they will not literally steal your money. They will just print away it's value, it's the same thing."

"well as long as they don't try to pull that shit over there"



thisandthat's picture

Tastes just like the real thing!

silvertrain's picture

I wouldnt worry, didnt we just go through stress tests for all the banks and they passed with flying colors?

We are going to have to all get along if were going to make this one world currency thingy work...

toys for tits's picture

I continue to go back to the 24 hour run on US banks in 2008 that would have decimated the economy if the account limit for insurance wasn't raised to 250k.

It is all about trust and the Euro leaders broke that trust.  It won't matter how their parliamant votes now.

fonzannoon's picture

This may sound weird but I am calling bullshit on this whole thing.

This was a consciously made decision. This was not some huge bank run out of nowhere or some "event" that was completely unforseen. This was a manufactured crisis masked to look like an unforseen event.

I'm not saying this was not a big deal, but I can somehow see this being digested. I still hear Maria telling me "we're coming off the lows" tomorrow afternoon.


Waterfallsparkles's picture

Or Maria saying would you put new Money to work here.

She is like a broken record.  Saying the same things over and over again.

Stanley Lord's picture

That is funny. Maria is such an assclown with her cow udder tits (she has big cans when you see her on the street) this is why I love ZH, the comments crack me up, it is like writing on the bathroom wall-

NoDebt's picture

Maybe.  Germany could offer no other soution, politically speaking.  So they offered it.  The Cypriot negotiators stupidly agreed and now we're where we are.  If there was a mistake it was that nobody seriously considered the possibility of a good old-fashioned bank run happening as a result (top brass NEVER thinks about things from the perspective of the ordinary grunt in the trenches which is why they never see themselves over-stepping until it's too late).

Agreed, however, this is only Act 1 of this saga.  There is some MASSIVE back-pedaling and renegotiation to come.

squid virtuous's picture

Exactly... Maria B "as we enter the final shhhtretch, shtocks are well off the lows we shaw thish morning ... letsh go down to the floor where Gay Bob has the pulsh of this reshilient market"