Cyprus surprise - Cypriot depositors to take a 'haircut'

HAMISH_MCTAVISH

ILW wrote: »

Will banks now need to put a disclaimer on deposit accounts along the lines of "there is no guarantee you will receive you capital back on request"?

There is no guarantee the govt will not raise taxes.

And take it from your bank account as opposed to your wages.

Never has been.

Mr_Mumble

A round-up of the best commentary on the situation:
The Economist - Unfair, short-sighted and self-defeating
FT Alphaville - A stupid idea whose time had come
Edward Conway - The tragedy of Cyprus

Conway's piece gives good historic context, this is all rather unprecedented.

Queenriderbrekke wrote: »

This may sound silly, but why just depositers? Why should people with mortgages/loans get away without being taxed if depositers have to? Anyone who had a loan of under/over €100,000 get's an increase in how much they have to repay?

Mortgages are assets for banks and increasing repayment amounts reduces the value of the property via higher delinquency and default rates along with scaring off potential customers. On the other hand deposits are liabilities for banks.

The consequences of your, innovative, idea probably doesn't differ that much from the taking of depositors money for the Cypriot economy (or any mix of the two). However, there is a big difference if your short-term, I'd argue very short-sighted, task was to rescue Cypriot banks without inflating, defaulting or changing currency.

Also, the government would find it harder to masquerade increasing loan principals as a tax.

John_Pierpoint

grizzly1911 wrote: »

Yes I made the point about the Germans (think I got away with it) earlier.

I guess it would depend how many RBS shares you got, even after dilution, better than a poke in the eye with a sharp stick

As a former Halifax shareholder, I would like to apologise to the Lloyds shareholders;

Beware of banks based in islands?:eek:

Let me rewrite that:
Beware of banks based in small islands?;)

cepheus

michaels wrote: »

If I had savings in one of those Indian banks who were recently offering high rates or even in ING I wold be seriously thinking about this. I believe Santander UK is a separate legal entity and safe from any Spanish Govt asset grab?

Even depositors in 'Bank of Cyprus UK' won't be affected by that country's tax on savers.

wotsthat

Mr_Mumble wrote: »

Conway's piece gives good historic context, this is all rather unprecedented.

In The Sun it's the 4th lead story after..

- a man without a penis has sex with 100 women
- will Rio Ferdinand get an England call up
- Vicky Price's prison is like a hotel

They've spotted that we have armed forces in Cyprus so seem to be working on a 'naughty or nice' list whilst they try and work out where to position themselves and read up what decent journalists are reporting.

They'll probably be calling for the UK government to recompense everyone on the 'nice' list i.e. armed forces, cuddly pensioners and the hard working.

armour

State sanctioned theft, done in a sneaky & underhand manner. I can see other savers in "financialy challenged" EU states moving money into (non EU) assets.
Another prop for UK house prices?

John_Pierpoint

cepheus:

“Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist”. Kenneth Boulding

Have the Chinese pushed the world economy (and population) to the point where stored wealth in the form of money, needs to be cut to match the reality of resources per head?
We no longer have sparsely populated continents, where we can engineer our huddled masses to go forth and multiply; what ever the new pope might think.
The last country to try force was Imperial Japan - the Chinese are being more subtle.

I tend not to find myself agreeing with Hamish, but this time I think he has his finger on reality.

If you live in an economy where the government "hair-cuts" its prudent citizens using a 10% cash tax and one where a "quantitative easing" technique, to "scalp" the value of money by expanding the money supply by 10%; morally what is the difference ?

In many ways, the former is politically more honest; so don't expect to see a simple capital levy to reduce the size of the British banking industry any time soon.
The "quantitative easing" system used to keep our casino, an almost certainly parasitic activity, creaming off a layer of the world's GDP, into the pockets of the croupiers, is so important to maintaining our living standards, that inflation and devaluation is our choice.

The only slightly worrying thing is that we in the UK, the former colonial masters must have given Cyprus the constitution that allows the Germans to do this.

Anyone want to guess where the hot (Russian?) money will be going next ?

Anyone know how far this tax reaches - in UK terms, but over in Cyprus - does it reach into every account that would be paying income tax at source at 20%.
What about international commercial accounts that would pay gross?
How about so called "bonds", eg 5 - 10 year loan contracts?
What about real bonds the ones that stand one position ahead of shares in a liquidation?
Yes that is right, such as those belonging to the former Bristol & West building society investors, who had the misfortune to find themselves ending up in Dublin as
co-lateral damage?

http://citywire.co.uk/money/bank-of-ireland-investors-suffer-savage-haircut/a498226
the comments under the news item make interesting reading.
http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=10903762

Masomnia

As far as I can tell this is essentially a forced debt for equity swap in the banking sector. I'm not sure it would even be legal in any other sector.

ChiefGrasscutter

John_Pierpoint wrote: »

The only slightly worrying thing is that we in the UK, the former colonial masters must have given Cyprus the constitution that allows the Germans to do this.

No, we didn't.
I'ts currently illegal
The Cyprus government need to pass a law over the weekend to make it legal from Monday night - sort of retrospective legislation.
Convienently Monday is a bank holiday in Cyprus.
Those who withdrew money over the weekend will not 'get away with it' as all ATM's withdrawals will be dated as of next Tuesday the first banking day after the long weekend - so the balances prior to the ATM withdrawal will be the one subject to the haircut.

Note the the haircut is not affecting true bank bondholders - thereby turning accounting practices and risk/reward strategies on their head.
Why who knows probably because there are too many Germans owning Cyrpiot bank bonds - can't have that can we.

It also doesn't affect Greeks owning accounts in Cyprus.......because, well I don't know why. But probably because they are the most likely to riot and trash/burn the place.
I'm suprised they don't also include (text removed by forum team) as a random minority group as also being excluded.

You really could not make this up.

It would have been more intelligent to apply the (larger) haircut to ONLY deposits above £100K - thereby saving the small saver and penalising those who have huge and probably dodgy deposits with the banks.

IronWolf

HAMISH_MCTAVISH wrote: »

Yawn.

Putting money in the bank does not in any way exempt it from a decision to increase tax.

You seem to be muddling an awful lot of topics here Graham.

You only need to understand one thing...

It's a one-off tax. Removed at source from their bank accounts.

Deposit insurance schemes are of no relevance, as they don't guard against taxation.

This isnt a tax, youd have to be pretty dense to believe Europes spin on this into a 'tax'. Its a bank bailout pure and simple, the banks are insolvent and what they are doing is illegal, so they simply named it a tax to circumvent european law.

Cant think of any tax ive paid where i received shares.... This is a rights issue thats been forced on depositors