But Isn't Cyprus "Unique"?

Tyler Durden's picture

Think Cyprus is unique? Think again warns Citi's Matt King

The sound and fury of a European leadership denying the template-nature of Cyprus was deafening last week following D-Boom's comments and while we suspect the Cyprus deal was from unique and exceptional, it is clear, as Citi's Matt King notes that Cyprus’ significance was always going to stem more from the precedent it created than from its size. In choosing a relatively conventional good bank, bad bank model, the authorities have done much to alleviate the damage that would have been caused by an arbitrary tax on uninsured depositors. But the very “success” of the solution now being adopted seems likely to lead to its replication elsewhere. While arguably good news for the sovereigns and for longer-term growth prospects (though the chasm to be crossed to that growth is treacherous), its negative repercussions for senior bank bondholders still seem far from being priced in.

Via Matt King, Citi,


So much for existing statutes

The Cyprus model has three key features, which highlight the effective elimination of many of bondholders’ supposed protections:

  • Hasty implementation under national legislation: the rapid passage of new national laws effectively re-writes existing bankruptcy legislation, reducing bondholders’ rights in the process. Even if bonds have been issued under UK or US law, this emphasis on the bankruptcy regime itself effectively dilutes or negates many of their protections.
  • Application to all bonds by statute: Cyprus again demonstrates that, when backed into a corner, the authorities are willing to impose losses by statute on all bonds, even at senior level. This contrasts with the previous official EU line of more or less waiting until 2018 to issue new, bail-in-able senior bonds, with their bail-inability set in contract rather than established by statute. 
  • Extremely low recoveries: the decision to move bonds to the bad bank, together with uninsured depositors and equity, is likely to result in extremely large losses. Even if bonds are not actually converted outright into equity, as seems possible, the decision to protect not only insured deposits but also €9bn in ELA (both of which are going to what is effectively the good bank) is likely to result in near-zero recoveries.

But isn’t Cyprus “unique”?

Against this, of course, is the argument - noisily voiced by the authorities - that Cyprus is unique. We disagree. Yes, the Cypriot banking system was unusually large; yes, concerns over the Russian depositor base are unlikely to be a feature elsewhere; yes, losses for bondholders will likely be exacerbated by the unusually small proportion of the capital structure they represent (Figure 1).

But to us, the similarities with other countries are far stronger than the differences. First, almost all EU countries have banking systems that are outsized by global standards, and which might prove difficult to save if they got into difficulty (Figure 2). We see it as no coincidence that one of the chief advocates for senior bail-in to date has been the UK.

Second, the likelihood of low recoveries for bank bondholders in the event of restructurings is something we have been writing about since 2008. Even without the formal application of bail-in and creation of good and bad banks, the tendency towards covered bond issuance by weaker banks, and the growth in both private and public sector repo (ECB and ELA) has led to far greater asset encumbrance than used to be the case historically, particularly by the time any bank gets to the point of requiring resolution. Add in the removal of pari passu status with depositors, and there is very little left.


How many one-offs make a trend?

Investors still seem reluctant to assume that the precedents being set will be applicable elsewhere. Perhaps this makes sense — even at Bankia last Friday, senior was spared losses for now, and while sub debt suffered haircuts, it was not wiped out completely. But the very fact that the market has responded so positively makes us think the very next bailout requiring approval from Brussels is likely to see elements of a similar model being requested. The fact that it was creditors like Germany, not the European Commission, who were pushing for the good bank, bad bank solution in Cyprus (as opposed to a deposit tax) is telling in this regard. So too is Djisselboem’s statement today that the “Cyprus bank restructuring plan should be seen as a template for the rest of the Euro zone”.

The market seems to be coming around to this view, but is not completely there yet.

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max2205's picture

That us # is bullshit

SafelyGraze's picture

take-home message:

invest in japan

smlbizman's picture

in the last quarter of my sons high school , his business class, according to him and yes he is a junior hedger,  was all about putting money in the bank...all your money in a bank....they even have a functioning bank in this school.  along with the rotc dicks everyweek...he is severly frustrated with all the sheep learnings.....

Banksters's picture

Cyprus is a template- dieselboom.


Banks will be recapitalized by depositors.   These fuckers won't stop until their pilfering hands are nailed to the table.

Mototard at Large's picture

Agree. What we will see from here on in is savers and takers.  What we are seeing in Cyprus and Spain is unnerving for many people – especially savers.  The The government, the Banks and supra-national organizations are creating new policies that say they can take your savings  http://tinyurl.com/d9d74qf

Savers beware everywhere.

Panafrican Funktron Robot's picture

"Cyprus is a template- dieselboom."


Direct link to the template.  Joint paper by the FDIC and the BoE, written in Dec. 2012.  By the way, the legal framework to do this here in the U.S. was put in place with Dodd Frank.  This thing is ready to roll. 

steve from virginia's picture




Asset quality of EU banks = dirt. Loans to bankrupt governments so as to bail out the bankrupt banks.


What does the establishment do? Punt. Cream liabilities and pray.


Not much of a plan.

Goldilocks's picture

'Here Comes Peter Cottontail' - By Gene Autry - Happy Easter 2013
http://www.youtube.com/watch?v=0G6F0pyaT7c (1:45)

fonzannoon's picture

I spent all week reading this stuff. Went out in NYC last night to blow off some steam and have some laughs. I bounced around but spent most of my time at a place called The Ainsworth. High end sports bar...figured i'd watch some of the games.

It is absolutely fascinating to be out in NYC on a Friday night. The place was packed to the point where I could not move and it is a big place. I am 35 and i was one of the oldest people there. It was a bunch of 20 somethings living out an Amstel Lite commercial. $10 beers and $17 hard drinks were fliying out all over the place.

I have no idea if these people were pissing away their last penny or are making some serious bank and a $300 night out means nothing to them. I heard a few guys at the bar actually talking about how the market is bullshit and their generation are a bunch of pussies...but overall it was party central.

These people have absolutely no idea what is going on. the further the water recedes the more beach they think they have to lounge on. It was amazing and scary as hell.

kliguy38's picture

you are correct in your analysis....whether its wanton ignorance or just stupidity....its still a remarkable cluelessness that permeates all of the hedges....particularly the under 45 yo crowd......very few I encounter have a clue regarding the nature of this beast.....just discuss gold or silver with them watch them stare vapidly

fonzannoon's picture

yeah it's so true. They make sheep look rebellious. ask them about zirp and (after u explain it) they will shrug and say "keep my interest, it's my contribution to society". If they install face and ass recognition computers that check your age, grab your balls and slap u in the face at the door they will be thankful that the establishment is taking the appropriate steps to protect it's patrons...

McMolotov's picture

You and I are the same age, and needless to say I'm disappointed in our own generation. But to say I'm frightened for the one right behind us is an enormous understatement.

When it all goes completely to shit — and people are sadly mistaken if they think we've already hit "the bad part" — these people in their 20s will have spent their first decade of adulthood in a stupor of mindless consumption, completely unmotivated, unemployed, unprepared, and uninformed. Reality will hit them like a ton of bricks, and they could potentially be "lost" for the remainder of their lives.

Now, I realize I'm painting with a broad brush, and I don't really mean to cause any offense. I realize there are some bright spots within this age group because I'm friends with a few of them. But public schools, the media, and helicopter parenting have done one hell of a number on most of these kids, and they could be damaged beyond repair.

I just hope I'm wrong. They're Huxley kids in an increasingly Orwellian world.

McMolotov's picture

Well then I need a damn drink.

fonzannoon's picture

I'm not frightened for them I am frightened of them. Their absolute and complete ignorance will cause them to cling to all the wrong helping hands and they will be instrumental in the most successful power grab in our history.

and it is not just the young. It's 99% of the population.

McMolotov's picture

I guess I'm still at the pity stage, but yeah I should probably come to grips with the fact that most of them won't wake up and will be the "fresh blood" the system needs to maintain and strengthen its stranglehold on power. Now I really need a drink. Time for a mental break.

Pseudo Anonym's picture

there's only so much one can do to help others.  you know how it goes - you can lead a horse to the water but you cannot make it drink.  it's a dog eat dog world.  you can either be a victim or take advantage of other victims.  as you know, certain banking families have been taking advantage of the slave mentality of the plebs who simply refuse to free themselves from the grip of the current system.  i am prepared to say, hypothetically speaking, that even if there was a complete reset and everybody was set free with 1oz of gold in the hand, the 99% would give up that gold just so they could be slaves again because being free takes tremendous courage and responsibility for one's affairs.  the 99% dont want that.  the 99% will always look for a master that will take care of them in exchange for the fruits of their labor.  the 99% is completely institutionalized in the concept of slavery.  sad but true.

rhinoblitzing's picture

Perhaps Obamacare will have a mandatory vaccination that will cure this problem - almost overnight...

olto's picture


Thanks----best news in years!

A lost generation without more children/mouths to feed?

Someone should have thought of this before the boomers popped out.

Sorry, dude, but I hope that you are right!

Panafrican Funktron Robot's picture

Fonz/Molotov, same age as you guys, I really do feel like, as sad as it is, we're pretty much going to end up being the bridge generation to get us to the other side once the Next Great War starts.  We're young enough to be semi-relatable to the youngins (ie., we can frame shit they'll have to do to survive as "sustainable" and "green"), and old enough to have the fortitude to drag the boomers kicking and screaming into the new paradigm (you lazy fucking morons thought TV dinners came from the sky like manna from heaven, now grab a shovel and get digging before I beat you to death with it).  And yes, it is truly fucked up that we're the ones that are going to end up being relied on here, because so many of us are damaged goods.  

kliguy38's picture

We can expand it.... Psychpathic Induced Stupidiy Sheep...... PISS

MinnesotaMD's picture

I second that. People are willfully ignorant. Full blinders. They sense something is wrong, but they think our betters will do the right thing and it will be fair.

In my field, the "free health care" brigade will be getting it with both barrels soon. Right between the eyes. The only problem is that there is such an amazing amount of fixed, false belief in government, that the cognitive dissonance is epic.

Irving Kristol thought liberals became conservative when they were mugged by reality. What happens if they hold fast to their stupidity through multiple muggings on a daily basis? And they represent 51.7% of the voting population?

Augustus's picture

The Irving Kristol statement, relating to what becomes of the mugged liberals, can be updated to now expect the liberals to become the new muggers.  They now are in charge through the Obama regeim and the mugging is underway.

How many times have I heard or read that the country must accept illegal aliens because they will do work that Americans won't do?  So that person in the 1800's who put their belongings in a wheelbarrow and walked across the continent for a better life was not a real
American?  Or the settelers who crossed the appalachians with a Bible, an ax, and a plow, looking for a better life for their family were different from today's Americans?  Why would anyone today even think of that labor when they can live off of someone elxe's tax payments and get illegals to do all of the hard work?  I don't know when the music will stop but it cannot go on much longer.

AllWorkedUp's picture

 I wonder if this crowd will actually riot when the game ends or just ask mom and dad if they can shack up for awhile until the storm passes?

orez65's picture

But is not just the young.

It's retired people, lawyers, teachers, engineers ... they are all totally clueless.

Try to explain to them "fiat money" and they either give you the "deer in the headlights look" or think that you are making it up.

I had a highly educated friend tell me that when the economy suffers the Government has to step in and straighten it out!!

The stupidity is totally incredible.


AllWorkedUp's picture

Let's just leave it at this. 98% of the U.S. population is absolutely clueless. The over 50 generation (my generation) is not only clueless but in large part to BLAME for the current nightmare.

  The AARP has done its' part to help the current regime. They're still watching and believing the nightly news.

rhinoblitzing's picture

Then you have those that ignore avoid all news - Ignorance is Bliss. They may be right.

RaceToTheBottom's picture

In some ways, the highly educated have it tougher.  They have to be able to let go most of the things they have been taught, which is hard since they have achieved their success via being taught something.

DRs are the perfect example.

world_debt_slave's picture

More than likely on food stamps and defaulted student loans.

the tower's picture

Some of the comments on this post (and in general on this site) are too negative. Yes, it will all come down, but there are many places where the pieces will be picked up quickly, not all will end up in a very dark place for a very long time.

Pure financial hubs, big and small - like NYC, London, Cyprus - will be dark, for sure, but there are still places where plenty is produced and manufactured, or where at least the potential (knowledge, infrastructure) is there.

In fact, I think it's a good time to party, while you still can. And look forward to a better, simpler life, cause let's face it, who wants this shit anyway.

Balvan's picture


It's called "living beyond our means".

Meanwhile Chinese children are working in factories for $5 a day. Such a disbalance can't last forever in globalized world.

MinnesotaMD's picture

Propping up a destroyed currency concept ( multi-lateral fiat). US propping up all markets with 85 billion a month. They think they are Demi-gods. What makes this hard to read is that the entire world is being pulled through this proverbial knothole, and no one knows what is on the other side of the fence. In the past thee US was a safe repository with the rule of law. Switzerland is now out of the picture given recent events. Where is Galt's Gulch in the modern era?

King_Julian's picture

Doc, Galt's Gulch is where you build it. It is local. If it isn't local you need to make it local because when this shit storm breaks there might not be time to run. I have worked with people who know what freedom should look like. We've given up on the sheep. It just became a game with diminishing returns. We build our network. We swap skills to train. We share knowledge. ZH has been a tremendous resource in that regard. Find the folks around you who know or are willing to learn. Focus on them. Plot their homes on a (paper) map. Connect the dots. There is Galt's Gulch.

Aquarius's picture

Hasn't anyone in "leadership" (Politicians, Bureaucracy, Economists) come to the realization that the problem IS the Banking System? And, of course, the Bankers, the Bureaucrats, the Economists AND the politicians.

You cannot / will not solve a problem by feeding it!

This route which Cyprus, Australia and Canada are following is clearly the imposition (note this word) of global Communism; an ideology which has always started and ended in failure, genocide and ruin.

Ho hum


Aquarius's picture

Taken further the "status quo" which "they" are trying to protect is going to morph into something horrible before it gets better and probably make the terror and genocide of all wars known to date, appear rather mild in comparison to their aggregate sum.

Okay then, no income and no disposable income; so where is the consumerization model? Reduced to 1%?

No ~70% consumer, then why invent new "stuff". Sack all the designers and inventors of "stuff", shut the factories, no trucks, no trains, no cars, just bureuacrats with guns and drones - to kill.

Oh, the "State". Okay, why work? Lenin found this straight off and had to murder 24 Millions of his fellow Russian eaters. Stalin probably took it to !100 Millions, nobody knows. The beloved "Communist State" model doesn't work; people work!

Okay, everybody becomes a Bureaucrat which results in no productivity and no growth, black markets, crime and cronyism. Oh, we are already there?

Monsanto wants cash for the seed. What cash? Nobody will have anything except the State. It is all being taken already

Is the US Bolshevik ideology that the neocon Trotskyites which is known as the Project for the New Amercian Century (PNAC) http://www.newamericancentury.org/  emulation Lenin, Trotsky Stalin et al, designed to eliminate ~7Billion peoples?

Is this what all this applied ignorance all about?  Oh where is Pallas Athena? 

Ho hum

q99x2's picture

What the hell are people talking about. What's the question. Are banksters going to keep stealing peoples money any way the can? Is that the question. Homey they are going to take your guns, your gold, your home, your bank accounts, your job (if they haven't already), your cars, your food, And then they are going to fuckin kill you.They're banksters. That's what banksters do.

AllWorkedUp's picture

 I guess the banksters are probably in good shape as long as they don't take the police's (or their families) guns, gold, home and jobs etc.

 As long as they have the gun hands and the media and are effectively deflecting criticism and blame from the banksters and politicians the game continues.

W74's picture

Do derivatives count?  If they're not included in those charts (and they're not) then the US is fucked once those start selling off.

news printer's picture
Cyprus Bank Crisis - Can It Happen in America?


This guy (Jerry) is better then Max Keiser

Aquarius's picture

This kid is the "hope" of the USA and possibly the World. Thanks for the link.


Ho hum

news printer's picture



                    Can't do unconstitutional "things"


Kirk2NCC1701's picture

Cheers mateys, from Simon Black's big event in Santiago:

A number of all-star speakers I heard today (J. Rogers, J Rickards, N. Farage, P. Schiff and R. Paul) think that Capital Controls (and worse) are coming to the US.  Some think that a false-flag event will be used as trigger event and pretext for Capital Controls.

They differ on the timeline, but all are bearish on the GOP, Dems & Obama as being able or willing to fix the root cause.  Especially when even Bernanke does not get the real root cause, and keeps trying to solve the problem with the same tools from a fundamentally flawed and inadequate model. 

They also agree on BTFD + Stack + 2nd Amendment exercises are very prudent for risk mitigation, for what looks like an inevitable "Reset" that will likely get very ugly very fast.

Hope that either Simon or Tyler follows up.  There had to be one Tyler here, right?

/Glad we didn't get droned.  But at 3 levels below hotel lobby, they'd have to use bunker-busters. /sarc.  Kirk out.

Tao 4 the Show's picture

Thanks for the update. Sounds fun, but my sense is that these meetings are mostly for moral support at this point. Anyone who reads should know what is going on/is coming.

Anything new said?

In the former system, guys like this had a certain power and foresight as movers and shakers. Money was equal to power. It still is to a certain extent, but that reality is fading fast. Even billionaires not on the inside (whatever that is) can and likely will be wiped out unceremoniously.

Nigel Farage has succeeded in at least achieving the status of an irritant to the system (Wasn't he banned from some debates?) But the whole concept of these big guy meetings is becoming dated, I think.