This page has been archived and commenting is disabled.
And Scene: Big Cypriot Depositors Facing Complete Wipe Out
9.9%? 30%? 60%? 80%? Nope - according to the latest from Reuters, the cash-on-cash return to all uninsured depositors in the healthy, i.e., only remaining big Cyprus bank, will be a big, fat doughnut.
In what appears to be drastically worse than many had hoped (and expected), uninsured depositors in Cyprus' largest bank stand to get no actual cash back from their initial deposit as the plan (expected to be announced tomorrow) is:
- 22.5% of the previous cash deposit gone forever (pure haircut)
- 40% of the previous cash deposit will receive interest (but will never be repaid),
- and the remaining 37.5% of the previous cash deposit will be swapped into equity into the bank (a completely worthless bank that is of course.)
So, theoretically this is 62.5% haircut but once everyone decides to 'sell' their shares to reconstitute some cash then we would imagine it will be far greater. Furthermore, at what valuation will the 37.5% equity be allocated (we suspect a rather aggressive mark-up to 'market' clearing levels).
Critically though, there is no cash. None. If you had EUR150,000 in the bank last week (net of insured deposits which may well be impaired before all is said and done) you now have EUR0,000 to draw on! But will earn interest on EUR60,000 (though we do not know at what rate); and own EUR56,250 worth of Bank of Cyprus shares (the same bank that will experience the slow-burn leak of capital controlled outflows).
It seems, just as we warned, that the deposit outflow leakage that we discussed did indeed weaken the situation of the large banks significantly.
As Reuters adds, the toughening of the terms will send a clear signal that the bailout means the end of Cyprus as a hub for offshore finance and could accelerate economic decline on the island and bring steeper job losses.
»
- 50870 reads
- Printer-friendly version
- Send to friend
- advertisements -
Interesting that the country that bends over for the oligarch dollar also likes to keep the welfare tap running.
http://www.telegraph.co.uk/news/politics/conservative/9962079/Iain-Dunca...
If it wasn't obvious that the uk is a basket case before then it is now.
not unique to the UK..the volume of benefits paid increases (taxes fall) as unemployment rises..
me, i would rather have civil servants on the dole than earning ten times that amount with inflation proofed pensions at the higher level) in the civil service.
the dnon-discretionary component of US fed spending is approaching 95% of taxes..its not all pentagon spending...obama made it a priority to reduce pentagon share of spending..he did this by inflating all the other components of spending to make offense (sorry defense) spending smaller.
you only have to look at health spending..and subsidies to health care provision..to ee that the US is worse than Britain in this regard.
40 million SNAP beneficiaries are only the tip of the iceberg.
what to do about vets, 10% of which max, were front line troops who put their lives on the line for pin head politicians is difficult..you cnt cut these..but it will be real when the cooks, cleaners, phone operators and acilliary staff get hit first for vet benefit cuts.
Sad to see that the USA is fucking itself too.
It seemed like you'd be free of the guilt of empire shit,
But you have a big complement of Israel firsters to drive the industry then it makes sense
Frankfurt school
This is all a sick political maneuver. Why is there no talk, outside of the imploded Greek bonds, of Cyprus' banks' assets?
This is not about "depositors" and their awful situation. "Depositors" are the smokescreen.
If there was monumental fraud there, the best way to hide it is by creating a huge mess like the Troika has done and send the bill to "others" (the small group of island residents).
The Troika spawned a depositor run over the past 2 months by demonizing "depositors". Yet traditional banking is all about depositors and borrowers.
So when do we learn about the borrower health? well... The Troika just killed the Cypriot economy. Was it to hide some fraudulent lender/borrower relationships?
The Troika just killed the Greek economy. Does the Troika not want to be responsible for the Cypriot banks' mortgage lending in Greece?
And why is there NO talk of Cypriot derivatives and Special Vehicle counterparty relationships? Who is to pay for these gambles now that the Troika decimated not just the Cyprus economy, not just the Greek economy, but at the very least the Balkan economy (if not impacting Italy and Spain)
excellent insight
my thought is that, compared to the fraud on physicals, the derivatives portion is minute. that is, the banks did not use derivatives much to hedge mortgage rates and that mortgage rates were not, in any case, tied directly to overnight, 90, 180, 1 year 5 year or 30 year LIBOR or EURIBOR (Nicosia IBOR?).
but your point is very well made.
can't see the lawyers getting involved though, because, as you say, nobody has any money to pay them in what is a de facto (de fuckedo?) failed nation state.
the failure will evolve over the next two weeks to three months when it becomes brutally apparent that the tourist trade has stopped, transaction volumes (velocity of money for PhD ivory tower types) have slumped (tended to zero).
i just pray that this isn't the set-up for actions across the globe and that we are seeing the end of TBTF or TBTJ instead.
There is an article in the London Telegraph that indicates the big British banks had ~ 0.5B exposure to off balance sheet structures in Cyprus. Those are just the big banks and Cyprus was a competitor to London.
And we should not concern ourselves with just "big banks". The shadow markets of mainland Europe and Cyprus keep their money somewhere and do counter-party with "big banks". Slam the Cyprus money center (after all it was these 2 banks) and who knows what counterparty relationships are out of balance now and to what leveraged amount.
There are also "default risk" and "currency" derivatives to think of, not just interest rate. And if one is taking deposits and lending to Russia, each direction having currency and default risk exposure, why wouldn't there be derivatives? That is exactly why JPM invented them.
European banks love derivatives. Just look up bailouts like Dexia and some German Landesbanken. As inverted pyramids, just a little bit of customer or bank money confiscation can ripple a provacative wave. Maybe Laiki had to close - or the wave would have channelled through Cyprus to the ECB in a way that shows how rickety this whole ECB banking scheme is? Having worldwide focus on "depositors" is the perfect smokescreen.
This is all conjecture. But isn't it sad that authorities involved in 21st Century bank bailouts/ins never discuss derivatives until months or years later? Look at Dexia for an example where French and Belgians were not immediately told their derivative exposure - an exposure that was not erased in the bailout even though it should be among the first to go.
absolutely..it as plain as the (big and broken) nose on my face that the next "crash" will come from collateral failure securing the quadrillion of gross derivatives/50 billion of net p/l.
the derivatives market is growing exponentially, all secured on dodgier and dodgier credit. we will see a crash that progresess from "failure to settle" government debt (common practise in the US) through to a Lehman/Corzine debacle leading to a "dawning" that you aren't exposed to your net to a counteprarty..you are exposed to the whole amount of risk to that counteprarty with the profit just one (small) component.
BIS must have some stats on Cyprus exposures...its the law (best clouseau/stallone accent)
i can easily see billions of dollars of tax deals in structured vehicles that "arb" the tax structure there.. these will have to be unwound also, resulting i can very large drop off in tax revenues to cyprus (but not necessarily a gain to the domiciles (like France, teh UK, Italy, germany) that are being dodged
Zhou Tonged Does it Again. This One's Going Viral!
Zhou Tonged – Cyprus Anthem (Swedish House Mafia – Don’t You Worry Child)
Just when the Cypriots were losing faith
That’s when I learned about the block chain
I still remember how it all changed
Satoshi said:
Don’t you worry, don’t you worry, child
Bitcoin has got a plan for you
Don’t you worry, don’t you worry now
http://www.thebitcoinchannel.com/
After reading most of the comments, I am encouraged to see that many of the posters here get IT.
TPTB are out to get everything, the whole shebang.
If you are not a member of the clique, you are an insect in their eyes; a debt serf; a menial laborer who owns nothing, has no rights, and requires only subsistance level food and resources to be able to serve his masters.
I guess that's one way to avoid a bank run.
You would expect the Russians to at least give them a few Rubles; maybe a Russian doll?
I don't think the issue is with the deposit insurance. I believe the issue is with the derivatives. Banks with derivatives are risking so much that no ORGN will be able to honor the deposit insurance. Granted it is just dumb not to have the money shared around totalling less than the insurance levels but never have it in any bank that "invests" in derivatives. CUs are better than banks
Amazing, truly amazing. Everytime I read these cyprus articles - still cannot believe it. EU MSM puppets are brainwashing citizens that there were Russian black money there ... but there must have been 1000s of other savers. So now we see that even black criminal laudry money was good enough to be confiscated - and used next day to provide new loans with leverage 20+:1 back to cypriot & etc governments at much higher interest rates than yesterday. While whole society is collapsing. Preparing to hand over rich hydrocarbon seabed to new owner.
To borrow from Ed Koch, 'Doesn't the truth matter?' Or, how about simple facts?
Glass-Steagall (The Banking Act of 1933) has NOT been repealed. Stroll into any bank and see if there isn't a sign somewhere proclaiming that the deposits there are insured by the FDIC. That is Glass-Steagall.
All that has been repealed were two provisions (#20 and #32) out of the original 34. Those two were about 'affiliations' and board memberships between commercial and investment banks. Had either remained in place they would have had nothing to do with the financial crisis of 2008.
The provisions defining commercial (#16) and investment banking (#21) were concerned with the now totally discredited idea that banks speculation in corporate securities was the cause of the Great Depression. No sober economic historian believes that to have been true.
At any rate, the 2008 problems were in real estate loans, not corporate securities. It's a dead giveaway that someone is clueless when he says that it's 'the repeal of Glass-Steagall'.
#4 Posted by Patrick R. Sullivan, CJR on Mon 28 May 2012 at 05:33 PM
It's kinda common knowledge when we talk about the Gramm-Leach-Bliley act's effect on Glass-Steagall that we're talking about the repeal of those sections making federally insured banks separate from the high flyer investment banks.
It's a pedantic point that maybe commenters could be more accurate about, but it's not like you can label some one 'clueless' just because they use the short hand 'repeal glass-steagall' when what is meant is 'repeal glass-steagall protections/restrictions'.
And it's probably wise not to label people clueless when you don't seem to have the causes of the Great Depression right nor get how " the 2008 problems.. in real estate loans" caused by huge irregularities in the Mortgage Backed Securities market might have been mitigated by having restriction #20:
"Sec. 20. After one year from the date of the enactment of this Act, no member bank shall be affiliated in any manner described in section 2 (b) hereof with any corporation, association, business trust, or other similar organization engaged principally in the issue, flotation, underwriting, public sale, or distribution at wholesale or retail or through syndicate participation of stocks, bonds, debentures, notes, or other securities. "
or #32:
"Sec. 32. From and after January 1, 1934, no officer or director of any member bank shall be an officer, director, or manager of any corporation, partnership, or unincorporated association engaged primarily in the business of purchasing, selling, or negotiating securities, and no member bank shall perform the functions of a correspondent bank on behalf of any such individual, partnership, corporation, or unincorporated association and no such individual, partnership, corporation, or unincorporated association shall perform the functions or a correspondent for any member bank or hold on deposit any funds on behalf of any member bank, unless in any such case there is a permit therefor issued by the Federal Reserve Board; and the Board is authorized to issue such permit if in its judgment it is not incompatible with the public interest, and to revoke any such permit whenever it finds after reasonable notice and opportunity to be heard, that the public interest requires such revocation."
And, regardless of what you think, the effect of repealing these restrictions was that the US now had several financial regulators, each which had an area of specialty, regulating enterprises which now had no specialty but were now, in the words of Al Sherman, a hungarian goulash of finance.
Which is how you ended up with one of the world's largest insurers, who was loading itself up with MBS CDS's in their London office, being in the charge of a piddilly S&L regulator.
Complex finance makes big profits for institutions who understand the system well enough to make money off of unsophisticated clients/investors (who lose their money). Really complex finance makes big losses for everybody because nobody can understand the system well enough to avoid loss.
Glass-Steagall forced finance to become less complex so that it would make money from "long term greedy" growth and not wheelie dealie wealth redistribution from suckers to traders.
If you don't get that, then clueless is your forte, friend.
#5 Posted by Thimbles, CJR on Mon 28 May 2012 at 08:10 PM