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Goldman's Cyprus Post Mortem And A Review Of The Forced "Depost-To-Equity" Conversion
From Goldman's Francesco Garzarelli
In the early hours of Monday 25 March, Cyprus and the Eurogroup have reached a deal on a financial support package.
As before, the Eurogroup will contribute, via the ESM, up to EUR 10bn (roughly 60% of Cyprus’ GDP), the bulk of which is to be used to cover debt roll-overs and the primary deficit now that the country has all but lost market access.
The idea of using a one-off levy on all bank deposits to cover the hole (estimated at EUR 5bn) left in domestic banking institutions by exposures to Greece has been ditched. Instead, Laiki Bank will be immediately resolved, with a ‘good’ bank carved out and folded into Bank of Cyprus, and a ‘bad’ bank run down over time. The ECB will provide liquidity to the new recapitalized institution, which will inherit the Emergency Liquidity Assistance positions of Laiki.
The restructuring of the two banks will be conducted under the new and extensive bank resolution authority conferred to the Central Bank of Cyprus last week, and will not require parliamentary approval. The operation will involve losses being inflicted on the (few) junior and senior bank bondholders of the two institutions and, more crucially, on deposits above the EUR 100K threshold (a communiqué by the Eurogroup talks about a deposit-to-equity conversion, but no details are provided).
From a markets standpoint, our reaction is as follows.
(i) A policy preference for not transferring banks' liabilities onto the government sector where possible has once again transpired, increasing the policy ‘distance’ between Ireland on the one side, and Spain and Cyprus on the other. This was one of the two main ‘read acrosses’ we mentioned in a note published last Sunday (see Market Views Two Lessons from Cyprus). On the expectation that public debt held by private hands will be mutualised onto the Euro area’s balance sheet, short-dated Cypriot debt has rallied. But with large uncertainties over what the economy will do over coming years, longer-dated Cypriot bonds trading at yields below their Greek counterparts offer little value.
(ii) The restructuring of the two main Cypriot domestic banks seems a big task to take on, going by what happened in Ireland. More generally, ahead of the deployment of a common bank resolution framework steered by a central European authority, the winding down of insolvent banks appears to be conducted on a case-by-case basis, with all the associated uncertainty. All else equal, this should be detrimental for creditors in weaker banks in other Euro area countries, particularly those in the fiscally weaker states.
(iii) On broader market sentiment, investors had anticipated that a resolution in Cyprus would ultimately be found. This was the line we also held coming into last week. But reaching a deal has raised awareness that inter-country fiscal transfers in the Euro area remain a messy business, leaving public opinion damaged. In the European macro space, the spread between Italian 10-year BTPs and German Bunds now looks too wide relative to what would be justified by macro and fiscal factors, according to our models (we mentioned that the spread should be around 275bp, and fair value is currently 225bp). Until more clarity emerges on how Cyprus will settle after the banks re-open, however, and with an attempt under way to form a new government and find a new President, we prefer to stay on the sidelines until the dust settles.
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Goldman conveniently leaves out their part in the Greek bond debacle, as well as its sale of $1 billion in Greek bonds to Laiki, which led to all of this shit.
Goldman also left out the part in which they helped Greece mask the true nature if its debt, through a Goldman designed cross-currency swap program (using bogus exchange rates). This allowed Greece to circumvent EU Maastricht deficit rules.
From my cold dead hands.....or my checking account.
Here come the bank runs....if they can do it there....they will do it anywhere.
'The restructuring of the two main Cypriot domestic banks seems a big task to take on.'
Not only that, but when you dig into a mountain of garbage, you always find surprises. Not the good kind, either.
If I were a depositor, I would still run like hell.
'The restructuring of the two main Cypriot domestic banks seems a big task to take on.'
which also is the best and only defense the tbtf have. they know it. and sure am i that they are working quietly to added complexity.
noted with disgust for the tbtf do i.
I guess lesson is: Be careful where you make a deposit, because you just might have to - ahem - own it?
"Make a deposit". It sounds so benign doesn't it. Even the definition of "deposit account" (a bank account that allows money to be deposited and withdrawn by the account holder) has a Bernaysian feel to it, designed to make you think that a bank is just safely holding your money for you.
Most average people don't realize a bank deposit is a loan to a bank. And the bank is infested with sharks, who will attempt every angle to separate you from more and more of your money.
What will they think of next?
You.
Bring it! Our slingshot waits patiently for its moment in the sun.
Central Bank Powers conferred last week,
We don't need no stinking legislative branch.
It would appear that governments have been taken over ... in the name of the greater good ... by the money changers.
@ Team Depends:
At this point, I'm not so sure I want to know what these crooked shits will think of next.......
It's getting kind of Twilight Zone-ish out there.....
I guess the Russians are Okay with losing all their deposits in the failed bank(which just
happens to be where the vast majority of KGB money was held) Whoever came up with
this plan or agrees to accept it, better start wearing a bullet-proof vest and hire a food taster.
Don't forget the Geiger-Muller counter.
Sidelines? Where is sidelines? I recommend stay on the beach if I you are in Cyprus
I mean this must be a joke; who the F sidelines Cyprus? Either your a F:ed i the A or your are not - yet!
Bench? Shit, I wouldn't even go to the game.
Goldman is the devil.
Anyway I don't know about Europe but someone correct me if I am wrong please. In the U.S you have fdic insurance up to 250k per person, per account. So if you have a savings account for Jim and Mary, in trust for little Bobby and little Annie, you have 1 mil in coverage. I am pretty sure that is the case. Not that it matters if these banks blow up. I just mean more in terms if TPTB decide to clip depositors.
What is also of note is this ( I know ZH and Santellie mentioned it a few times)
"Big Depositors Seek a New Safety Net
On the first day of the New Year, $1.5 trillion of bank deposits will lose an unlimited government guarantee that was granted during the financial crisis to assure skittish customers that their cash was safe. For a handful of boutique firms that service banks, it’s a boon for business.http://www.nytimes.com/2012/12/31/business/a-rush-to-split-up-big-bank-deposits-to-keep-them-safe.html?pagewanted=all&_r=0
It's in plain sight now.
If the banks are so solvent, on such sure footing, why is this insurance necessary? I guess stress testing really doesn't tell ANY part of the story. The rich will get theirs, regardless. They are the only ones allowed a (backroom) vote.
WTF? "Until more clarity emerges on how Cyprus will settle after the banks re-open, however, and with an attempt under way to form a new government and find a new President,..."
this Cypriot president was elected (directly) just weeks ago - interesting how the Squid is already pushing for his disposal
which just reminds me my little comprehension of how people can accept political setups that give one person so much power, as Romania, France and the US do (edit: replied to the wrong comment)
Goldman Sachs is a Vampire Squid wrapped around the face of the world +1
in short: the EU parliament made a law that says: "every member should make a law about saver's account protection" and gave some parameters
any talk about making an european depositor protection scheme are still in the doldrums, so it's a national affair
imho making a huge scheme would have the same Schrödinger result as in the US: it would become TBTF and at the same time irreal
FDIC: $25 billion in assets covering $9 *Trillion* in deposits. Yeah, that'll work.
The real key is how much money is in the "fund" that insures the trillions of dollars in deposit accounts? I think they are orders of magnitude short.
Turn around and run! Don't fucking look back, just run. Get your money out now.
What blah-blah-blah bullshit this is. I have heard better "resolutions" from friends and in-laws that owed me money. Convoluted monkeyshit babble, are we NOT supposed to see that they will of the people is not addressed here?
When the fuck are people in this country going to realize that the tact of telling you "it's for your own good" is complete and utter bullshit? Watch the trial balloon in Cyprus and next, Spain.
Baaaaah.
Socialist's forced deposit confiscation will become the new method worldwide for resolving really what amounts to the Liberal's out-of-control government spending and under-funded govt. pensions. PIIGS will go through it first, then the rest of the world and the reaction to it will be quite diverse. IRA's and 401k's will be tapped as well. But don't worry because it will always be 'in the best interest of the people'.
When the socialists run out of other peoples money they come for yours.
Please, please, please let people get their collective heads out of their collective asses and take all of their money out of banks.
They can't 'take all of their money out of banks'. How can you possibly think that they can? No bank in the history of banking has ever been able to repay all its deposits. Ever since the day the first goldsmith started taking deposits of his customer's gold and lending them out to those who had a use for them and would pay for such use the foundation of every banking business is the confidence that depositors can have their deposits back, even though anyone with a brain cell knows that all the depositors cannot have all their deposits back at the same time. Once that confidence goes the bank is bust. Instantly, irrevocably, and completely. Every time. No exceptions.
Perhaps just one jessie james successful robbery could accomplish that, and push up interest rates at the same time. Could he have worked for the bank under cover though?
Game changer
Finally. A financial institution allowed to fail.
Kind of like the death tax here....only you get actually watch them take it from you and your heirs.
And nothing but nothing is going to stop a run on these banks as much as the capital controls will allow. Do you really think anyone in Cyprus is just going to wake up tomorrow and say Whew! What a relief? Glad that's over with !
Why isn't Blankfein's head on a fucking pike at this point ?
We can only hope for a bright future where everyone of these Zionist scum bankers are right back in the Krupp-made ovens where they belong.
The last paragraph of your post is disgusting and disgraceful. Shame on you.
Just a few links I have collected on Laiki Bank and Cypriot finance minister Michael Sarris. WARNING. Do not eat or drink while reading. You may damage your monitor. Pretty disgusting stuff.
http://www.reuters.com/article/2012/06/13/us-greece-marfin-idUSBRE85C0M920120613
Special Report: How a Greek bank infected Cyprus
(Andreas Vgenopoulos swath of financial destruction)
June 13, 2012
http://www.grreporter.info/en/mr_vgenopoulos_grandiose_party/1359
Mr. Vgenopoulos' grandiose party
(Former chairman of Laiki Bank)
October 16, 2009
http://cyprusdebt.com/marfin-laiki-tells-shareholders-were-sorry/
Marfin Laiki tells shareholders, "Sorry"
April 3, 2012
http://www.cyprusnewsreport.com/?q=node/3011
Ex Laiki Officer Implicated in Money Laundering
May 11, 2010
http://cyprusdebt.com/what-you-didnt-know-about-laiki-bank/
What you didn't know about Laiki Bank (likely conflicts of interest)
Loans to Michael Sarris (2004, 2011)and other Laiki BOD members
June 1, 2012
http://famagusta-gazette.com/sarris-gets-finance-minister-job-p18318-69.htm
Michael Sarris background
Feb 25, 2013
http://www.imf.org/external/am/2007/speeches/pr41e.pdf
Michael Sarris speech to IMF Board of Governors
October 22, 2007
I'm just curious, how do you make a good bank and a bad bank out of two bankrupt banks? Shouldn’t it still be a bad bank and an unbelievably shitty bank that not even a shylock would lend money to under any circumstances?
From Reuters:
The Laiki bank will be split into a good and bad bank and the good part will be folded into the Bank of Cyprus. It will take 9 billion euros of European Central Bank liquidity with it to the Bank of Cyprus.
Bankrupt just means liabilities exceed asset values, with little to no hope of ever matching. It doesn't mean all assets have zero value. A "Good Bank" takes the insured deposits, then tries to take a sufficient number of good and performing assets, marked to market, to offset the liability represented by the deposits. The remaining assets might have some value, so as they are worked down in the Bad Bank, there may be funds left to partially repay depositors.
The same thing will occur in Bank of Cyprus, and then (probably because the combined two banks will be so much smaller) all deposits and assets can be combined and managed by the staff of the Bank of Cyprus. Laiki Bank employees lose their jobs in the bankruptcy.
"marked to market" ?????
Is that the Farmer's Market, the Black Market or the SuperMarket?
The tongue in cheek humor runs strong in that phrase.
Dr DOW will approve this good deal
Post mortem? More like pre-show canapés, starters served presumably at 9am tomorrow as the banks open.
Don't worry, Goldman came out like a banker...
The dust storm hasn't even started, let alone settled. You will be waiting a long time for the dust to settle.
the actual deal is as follows:
Laiki, or Cyprus Popular Bank, is to be closed. Its €4.2bn in deposits over €100,000 will be placed in a "bad bank" and could be wiped out entirely. Those with smaller deposits will see their accounts transferred to Bank of Cyprus.
The Cypriot government reportedly fought hard for Bank of Cyprus to be spared, but the island's biggest bank will face huge restructuring. No bailout money will be used to recapitalise it. Instead shareholders and bondholders will be hit. It is thought depositors with more than €100,000 at the bank will also be involved in the recapitalisation, and are expected to face losses of around 30%.
Getting the bank up to healthy EU-mandated capital levels will be made harder by the fact that Bank of Cyprus will inherit a €9bn debt Laiki had with the European Central Bank (ECB).
The bailout deal does not need approval from the Cypriot parliament because it has been achieved by restructuring the country's two largest banks, rather than levying a new tax on citizens.
The government of Cyprus took over Popular Bank in June 2012. Laiki will be split and the good assets will be absorbed by Bank of Cyprus. Bank of Cyprus's largest shareholder happens to be a Russian oligarch, Dmitry Evgenevich Rybolovlev.
make up your mind zero hedgers are you for free markets that allow for bankruptcy and thus losses.. or for the US model permaent Govt bail outs and FED zero funding. Sounds like you guys are more socalist that the EU..
Reading comprehension much?
Laiki depositors get wiped out but ECB saves 9bn worth of bonds from there. How that is fair bankruptcy ?
We're for bankruptcy. But there was no reason that should include depositor money. The original deal, before the Troika completely shit the bed, was for a 10% haircut. Well these banks were paying 10% interest: they could have just told depositors that there was a 1-year moratorium on interest. Taking depositor money, in a fractional reserve system, is suicide. Whether we think fractional reserve banking is sound, is another question.
US bailouts started with $750 billion for TARP. That was originally intended for mortgae holders to pay down debt. Instead it got handed to AIG, Goldman, and every other Wall St. Vulture. THAT's the difference.
I don't know about everyone else here, but I'm for those who caused the problem paying for it. In this case, GS should pony up the bucks.
So, did we get two bankruptcies, or did we get a bailout? Those were your choices.
This was not "free markets". Bankers assets have been made more senior to depositors which is against prevailing law and regulation.
Exactly who got "bailed out" again, please?
ECB 9bn in Laiki got bailed out at expense of Laiki depositors
look how easy to get away with bank robbery, corzine showed the way, sorry folks, crime is now spelled: government and your the mark.
ECB, French and German banks
Even if Cyprus parliament approval may not be required, Parliament can choose to get involved as much as it wants to reject or approve or modify the deal. Parliament just passed a whole series of banking laws. Parliament can certainly deide whether to accept or reject this whopper of a deal.
Cypriot parliament is pleased, at the moment
Cypriot parliament is pleased because they don't have to vote on it and incur the wrath of Vlad.
So how much gold did the bank of Laiki have and how much did teh Bank of Cyprus have to give up to be allowed to live?
I think more to the point is, how much private citizens' gold was taken from their homes during this act of blatant theft.
Your money is safe in the bank - yeah, right.
"Central Bank of Cyprus last week, and will not require parliamentary approval"
actually, this is false: it will not require the approval of Cyprus's parliament, but that of Germany's parliament. Cyrpus is therefore now officially a German colony / protectorate.
http://chasvoice.blogspot.com/2012/03/goldman-secret-greece-loan-shows-t...