Moody's: Cyprus Euro Exit Risk Substantial

Tyler Durden's picture


Though it may seem a little like stating the obvious to many, Moody's comments:

While the risk of a euro exit by Cyprus is substantial... ...following the economic dislocation that will be caused by the restructuring of the island's two largest banks and the imposition of capital controls in the country, it is possible that the risk of euro exit will increase further.

And so while the talking heads discuss Cyprus as a unique situation and too small to care about, it seems the reality of the last two weeks has actually raised their chance of Euro exit as opposed to bailed them into the Euro.


Moody's lowers Cyprus's country ceilings to Caa2
London, 27 March 2013 -- Moody's Investors Service announced today that it has lowered its assessment of the highest rating that can be assigned to a domestic debt issuer in Cyprus to Caa2, based on the increasing risk of an exit by the country from the euro area. Any rating actions taken as a result of the new country ceiling will be released during the coming week.

Cyprus's Caa3 government bond rating, and negative outlook, remains unchanged as it does not lie in the scope of this announcement.
While the risk of a euro exit by Cyprus is substantial, Moody's does not consider it as its central scenario. Following the economic dislocation that will be caused by the restructuring of the island's two largest banks and the imposition of capital controls in the country, it is possible that the risk of euro exit will increase further. If that were to occur, the maximum rating Moody's would assign to Cypriot securities would fall further.
An exit would result in large losses to investors due to the redenomination of government debt and private debt securities issued under Cypriot law. It would also lead to further severe disruption to the country's banking system and additional acute dislocations in the real economy. Such disruption would generally imply additional losses for holders of debt securities issued by Cypriot entities, irrespective of their governing law.
Moody's country ceilings capture externalities and event risks that arise unavoidably as a consequence of locating a business in a particular country and that ultimately constrain domestic issuers' ability to service their debt obligations. Country ceilings encapsulate elements of economic, financial, political and legal risks in a country, which include political instability, the risk of government intervention, the risk of systemic economic disruption, severe financial instability risks, currency redenomination and natural disasters, among other factors. These factors need to be incorporated into the ratings of the strongest issuers. The ceiling caps the credit rating of all issuers and transactions with material exposure to those risks. In other words, the ceiling affects all domestic issuers and transactions other than those whose assets and revenues are predominantly sourced from or located outside of the country, or which benefit from an external credit support.

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Wed, 03/27/2013 - 17:17 | 3383096 espirit
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All your 0's and 1's are belong to us.

Wed, 03/27/2013 - 17:23 | 3383150 camaro68ss
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eeeaaa just bought more ammo

Wed, 03/27/2013 - 17:28 | 3383172 King_of_simpletons
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Will some EURO zone member just leave without much posturing. Heard a lot of bluster from Greece, Ireland etc. Nothing happened. Atleast Cyprus can show the rest of EU that they have balls albeit a one which has been injured badly.

Wed, 03/27/2013 - 17:35 | 3383209 redpill
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Who gives a fuck about whether or not they'll be exiting the Euro, it's more like what happens when people are in the street eating each other in a month.

Wed, 03/27/2013 - 17:39 | 3383224 McMolotov
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Maybe The Walking Dead is meant to condition our minds so that we're prepared for the inevitable.

Wed, 03/27/2013 - 17:48 | 3383258 fonzannoon
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If I may ask a stupid question... If they exited the euro and went to their own currency which was massively devalued....and then it became cheap for Americans like me with my "strong dollar" to go stay at one of their tropical resorts would they not be in better shape than they are now?

Why would they want to stay in the euro? They should be rioting in the streets to get out.

Or do I have it wrong?

Wed, 03/27/2013 - 18:00 | 3383298 McMolotov
McMolotov's picture

That's my thinking, too, but it's fairly illuminating that they didn't even bother to have a vote on the bail-in. The people won't be allowed to voice their opinion because it would go against "the plan," and that plan is to use the euro as an instrument of financial oppression.

For all the talk of European unity, what I see is the desire to consolidate power within the hands of a technocratic bureaucracy that's as far removed from the people as it can possibly get.

Wed, 03/27/2013 - 18:36 | 3383407 TheGermanGuy
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Risk of an exit? The way I see it is that they are already out.

Wed, 03/27/2013 - 19:02 | 3383484 disabledvet
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You have a risk of an intervention now.

Wed, 03/27/2013 - 21:41 | 3383943 chindit13
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Regarding the "bail-in" vote, this is what the ballot would have looked like:

1)  Lose all your money

2)  Lose all your money except for what we can squeeze out of the EU/ECB

When the cupboard is bare, the cupboard is bare.  Democracy doesn't mean the people can make reappear what isn't there.

Generally the EU imposed "solutions" are geared toward making non-Blow Up countries' banks whole.  Not in the instance of Cyprus.  In the instance of Cyprus the EU/ECB merely acted as Coroner, pronouncing the patient DOA.  The EU/ECB sent flowers in the form of its cash contribution.  I suspect the EU would have been perfectly happy if Cyprus walked, reissued the Pound, and printed enough (at the Govt of Cyprus mandated exchange rate) to make Cypriot depositors "whole".  Cypriot officials probably knew that, so they played nice just to get a hand-out.  Something is better than nothing.  The same officials will try for another hand-out within two weeks.  Will the EU open its wallet?  To an island that's a lot closer physically to the Levant or Turkey than even Greece?  We'll see.

Thu, 03/28/2013 - 03:28 | 3384438 jeff montanye
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"I suspect the EU would have been perfectly happy if Cyprus walked, reissued the Pound, and printed enough (at the Govt of Cyprus mandated exchange rate) to make Cypriot depositors "whole"."

then why no vote if the cypriot legislature would have approved it.  would seem less high-handed, imo.

also would even so small a chink in the armor of the euro (such as it is) not bring irresistible pressure on the yields of spanish, italian, etc. bank and sovereign debt?  there is suspicion that this is not a one-off, it seems.

Wed, 03/27/2013 - 17:58 | 3383302 Dr. Engali
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They would be in better shape, but the ECB wouldn't and that can never be allowed.

Wed, 03/27/2013 - 18:24 | 3383376 smacker
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Cyprus is not a tropical resort island ;-)

Thu, 03/28/2013 - 03:32 | 3384443 jeff montanye
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not tropical.

but lots nicer than england or germany.  and most points north and east.

Wed, 03/27/2013 - 17:43 | 3383237 Temporalist
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I never eat people without salt...bath salts that is.

Wed, 03/27/2013 - 17:53 | 3383284 redpill
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What do you call it when a bath salt cannibal plans for the future?















Saving face

Wed, 03/27/2013 - 17:53 | 3383282 Dr. Engali
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At least they won't have to worry about clogging their arteries with all the gristle we have over here.

Wed, 03/27/2013 - 19:24 | 3383568 Hohum
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K of S,

No one's leaving the Euro.  Every country is scared that oil will become unaffordable with the local currency.

Wed, 03/27/2013 - 18:14 | 3383350 Jake88
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good luck with that. enjoy.

Wed, 03/27/2013 - 17:53 | 3383283 Sudden Debt
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So this guy walks into a bar...

and after 5 minutes he says....


And the barman looks to him and says: CASH ONLY FUCKFACE!!!


Wed, 03/27/2013 - 17:17 | 3383098 NoWayJose
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An exit would result in large losses to investors due to the redenomination of government debt and private debt securities issued under Cypriot law.

Laws?  We don't need no stinking laws.... we have the Troika...

Wed, 03/27/2013 - 17:33 | 3383200 Groundhog Day
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The politicians are bought and paid for...laws are meaningless.  Cyprus will never leave the Euro, they can't. Germany will not allow it.  Germany will torture the citizens until they off a few bankers and politicians and force a return to the Cyprus pound

Wed, 03/27/2013 - 17:17 | 3383100 Charles Wilson
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None Dare call it Frisson

Wed, 03/27/2013 - 17:17 | 3383101 bidaskspread
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US DOJ approves this message.

Wed, 03/27/2013 - 17:18 | 3383106 jal
jal's picture


What is happening has been planned.


Its a troika experiment.


Now we get to see what happens when the central banks do the right thing and don't start up the printing press.


The objective is to get a default and gather the data from the resulting chaos.


All doomers should pay attention.


Coming To a Town Near You


Wed, 03/27/2013 - 17:28 | 3383154 Manthong
Manthong's picture

Boy, that is just so insidious it could be right.

The problem is that the game players at the top do not feel in jeopardy.

Maybe if there was personal peril the game would change.

Wed, 03/27/2013 - 19:06 | 3383499 disabledvet
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The official statement was that this was a "template." go ahead...spin that one Moody's.

Thu, 03/28/2013 - 03:42 | 3384451 jeff montanye
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there may have been some russian or other mafiosi that didn't get the memo and remove all funds via london, etc. branches.  as the haircuts for any large depositors left in laiki bank would do the sioux proud, and revenge is a dish best served cold, there may be some personal peril yet to manifest itself.

Wed, 03/27/2013 - 17:48 | 3383259 chump666
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Don't give too much credit to those fools over there.  The ECB is doing everything it can to keep Cyprus in the Euro.  Why?  For one, the ECB is a huge behemoth of toxic waste.  It can print to cover unrealized losses, but if Cyprus goes, so will Italy, Spain, Portugal, Ireland and of course Greece.  It will devastate holders of PIIGS debt, anything backed by PIIGS collateral will evaporate to 0%.  Which means the ECB could take a huge hit, plus credit/liquidity markets will collapse in minutes.

They don't like chaos, they cant handle chaos, they live in a perpetrated money printing idealism to cover the inevitable. And the sound of inevitability is getting closer

This is nature.  They can't freeze time or stop forces that are far more powerful then academia arrogance. 

Wed, 03/27/2013 - 17:51 | 3383271 fonzannoon
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So chump you are saying if Cyprus goes, and ends up being in not so bad shape because they immediately become an inexpensive tropical tourist destination...Italy etc. will say screw this, we are out..

Is it that simple?

Wed, 03/27/2013 - 19:10 | 3383509 chump666
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Yeah, why not.  See, it's like everyone knows, that the Cypriots control their destiny, same with the Greeks.  All that fuss, protests, whatever and they vote their leaders (Greeks) bank in!!!  The markets are brutal, you can't have it both ways.  So far the captains with their rudderless titanic, think they can delver a deterministic system.  Bailouts, bail-ins, money print and we all sleep well.   The Cypriots need to exit the EU, they will get a hellish beat-down when they do, devaluation, depression.  But at least the slate is cleaned.  Start again.  Become a tourist mecca (not a tax haven), you'll get the Russians and rich Norwegians, other Europeans. 

An exit will also ensure that the markets don't get away with it either, Wall Street is so leveraged with this current rally it's eye-bleeding.  Europe the same, ECB/Draghi needs a severe beat-down, IMF, EU, all would get huge slaps to the face.



Wed, 03/27/2013 - 20:52 | 3383785 Umh
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Bureaucrats always go with a deterministic system. It's like a religion to them. The idea that people might make some good decisions without rules never occurs to them.

Wed, 03/27/2013 - 21:20 | 3383880 chump666
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I hate goverments.

Wed, 03/27/2013 - 17:20 | 3383117 fourchan
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do the banks have the peoples money or not? just kidding, i know the answer. just give the chumps more paper.

Wed, 03/27/2013 - 18:40 | 3383412 Sudden Debt
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Wed, 03/27/2013 - 21:14 | 3383865 jon dough
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Waaaait a minute...what's ur point?

Thu, 03/28/2013 - 03:49 | 3384457 Sudden Debt
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didn't I just made it?

Wed, 03/27/2013 - 17:21 | 3383121 espirit
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Better luck next time capturing that flighty capital.

Chess Masters think many moves ahead.

Wed, 03/27/2013 - 17:21 | 3383123 fonzannoon
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This type of event could cause a major US bank stock to drop 50 or 75 cents, at which point an excellent entry point would be presented.

Wed, 03/27/2013 - 17:26 | 3383160 camaro68ss
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I think you ment 50 to 75 POINTS, only to rebound in the last hour of trading to new highs

Wed, 03/27/2013 - 18:22 | 3383373 IridiumRebel
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AMZN goes that low and I'm all in!

Wed, 03/27/2013 - 17:21 | 3383132 Scalaris
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Sure, not a central scenario at this exact moment; at least not until a new right-wing party manifests itself out of thin air with the speed of light.

So probably around Christmas.

Wed, 03/27/2013 - 17:22 | 3383135 Roandavid
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You just can't put one over with Moody's on patrol.

Wed, 03/27/2013 - 17:22 | 3383140 Iocosus
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No one gets out of the Euro alive.

Wed, 03/27/2013 - 17:30 | 3383182 Sudden Debt
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You don't exit the Euro... the Euro exits you...

Wed, 03/27/2013 - 18:13 | 3383343 machineh
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... leaving a nasty exit wound.

Wed, 03/27/2013 - 17:23 | 3383143 bagehot99
bagehot99's picture

Losses? Those are for the little people.

Wed, 03/27/2013 - 17:25 | 3383158 Temporalist
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First off Krugman says deficits don't matter so why all this fuss about Cyprus if deficits and debt don't matter?  Must just be an anomaly.

Also, they should take the bailout and then leave the EZ.  Free money bitchez!

Wed, 03/27/2013 - 17:28 | 3383176 camaro68ss
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They must have not broke enough windows....

Wed, 03/27/2013 - 17:26 | 3383161 morning
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Long shrink clinics in Club Med.

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