UPDATE: It appears the 'deal' to default/restructure the banks has been designed to bypass the need for parliamentary votes, since it is theoretically not a tax.
While we have little color on what kind of carnage the President of Cyprus had to accept to his fellow countrymen, the news is that :
- CYPRUS, TROIKA REACH AGREEMENT IN PRINCIPLE, EU OFFICIAL SAYS
- DEAL MADE AT DINNER WITH DRAGHI, LAGARDE, VAN ROMPUY, BARROSO
The terms, unsurprisingly what zee Germans wanted, are:
i) Laiki to be wound down;
ii) Bank of Cyprus to survive but with deposit haircuts of up to 40% for the uninsureds, and
iii) deal would see secured deposits in Laiki moved to Bank of Cyprus.
In other words, a deal far worse then the original on proposed by the Eurogroup last week - when the banks still existed. The key appears to be the 'saving' of the insured depositors (crucial to avoid a pan-European bank run) and the crushing of the 'whale' depositors.
A more granular breakdown of the deal's "accomplishments", but with the same result for large depositors, via Reuters [8]:
- Laiki will be resolved immediately - with full contribution of equity shareholders, bond holders and uninsured depositors - based on a decision by the Central Bank of Cyprus, using the newly adopted Bank Resolution Framework.
- Laiki will be split into a good bank and a bad bank. The bad bank will be run down over time.
- The good bank will be folded into Bank of Cyprus (BoC), using the Bank Resolution Framework, after having heard the Boards of Directors of BoC and Laiki. It will take 9 billion Euros of ELA with it. Only uninsured deposits in BoC will remain frozen until recapitalization has been effected, and may subsequently be subject to appropriate conditions.
- The Governing Council of the ECB will provide liquidity to the BoC in line with applicable rules.
- BoC will be recapitalized through a deposit/equity conversion of uninsured deposits with full contribution of equity shareholders and bond holders.
- The conversion will be such that a capital ratio of 9 % is secured by the end of the program.
- All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation.
- The program money (up to 10 billion Euros) will not be used to recapitalize Laiki and Bank of Cyprus.
As Bloomberg further clarifies [9], uninsured depositors, or those with over EUR100,000 in savings may be completely wiped out: "Deposits below the EU deposit-guarantee ceiling of 100,000 euros will be protected, and a loss of no more than 40 percent will be imposed on uninsured depositors at the Bank of Cyprus [10], two EU officials said. Uninsured depositors at Cyprus Popular would largely be wiped out, two other officials said."
Farewell Russian oligrach money. We hardly knew ye.
S&P 500 futures and EUR are surging, Gold is dropping modestly.
We await final confirmation of the final terms of the final deal once the Cypriot people wake up (and don't forget the ECB 'standard of living' rules [11]).
The Cypriot Parliament still has to vote for this - and not one of them voted for it last week.
[12]
Filling the 'Cyprus' Gap
[13]
[14]
Treasuries sold off- 10Y back to 1.945% (+2bps) and 30Y 3.17% (+3bps)
[15]
This is far from over...
So let us get this straight, we have no further information on the actual terms of the deal than we did on Friday afternoon; the government (who rejected the deal last week) has no details of the deal yet; and the actual impairment for the depositors is far worse than last week's rejected deal; and the market is rallying...
It would appear the week was spent sorting through the names of bank accounts in each bank and the one with the most ending in '-ov' is to be wound down...Laiki
Step 1 appears to be 0500GMT Eurogroup Meeting (as per Holland's Diesel-Boom) agreement...
UPDATE: There is talk that there may be no need for the government to vote for this - since it is not a 'tax' but a bank restructuring. It seems they have kept it in the bankers... the ECB (in its independent way) tells the Cypriot NCB what it should do, the Cypriot central bank then restructures its bank how it sees fit - good/bad bank and haircuts where it sees fit - this then gets around need for vote from government AND any possibility of a European Union law (on taxation) being broken...