Cyprus surprise - Cypriot depositors to take a 'haircut'

Generali

vivatifosi wrote: »

Yes in the long term, no in the short term. I did see a couple being interviewed who had sold their house and were waiting for the new purchase to go through. They, as a result, had more than 100,000 euros in their account. It's people like that you have to feel terribly sorry for. Measures like this will always hit a small but unfortunate group who are having to make big-money life changes at exactly the wrong time.

Yes, I agree it is hard. The newspapers here are all over a story about a bank trader who put a million into a Cypriot bank and now has $100,000 as a result of this. I know the sums don't work but that's the story.

I think we have 2 options:

1: Don't create unfair anomalies by not taxing excessively
2: Tax excessively and accept that some people will be hurt in a ruinous fashion.

Mr_Mumble

Generali wrote: »

Just a thought: who the heck keeps more than EUR100,000 in cash? You've gotta be mad, a money launderer or a big business to do that.

Well, British councils for one!

A fair number of non-savvy OAPs are likely to have their life savings in a single 'safe' bank savings account. Many bank customers are very loyal - there's a reason banks give freebies and preferable rates to new students!

socrates

LARGE depositors in Bank of Cyprus will get shares in the bank worth 37.5 per cent of their deposits over €100,000, reports said last night, quoting a government decree.

However, a further 22.5 per cent of the deposits will be turned into a special instrument, which may be used in its entirety or partially to recapitalise the troubled lender at a later stage.

This will not bear any interest. It is understood the haircut will apply to those deposits in the bank at 10pm on March 26.

The remaining 40 per cent will continue to attract interest but has been locked presumably to prevent the immediate flight of capital.

A special committee will decide on how to proceed depending on the course of the economy and the bank itself.
The official publication of the decree is expected today.
It is understood that before the haircut, deposits will be offset against any loans a depositor may have.

Current shareholders will not lose their shares but any rights they have will be suspended.

Earlier yesterday, a depositor secured an injunction banning the haircut on deposits without compensation, decided by the Eurogroup early Monday as part of the island’s bailout.
According to an announcement, the court banned authorities from making any decision that reduced or wiped out the plaintiff’s deposits without affording fair compensation.
A second injunction banned authorities from intervening on deposits before offsetting them against the plaintiff’s obligations to the bank.

The Eurogroup decision provides that current shareholders will lose their shares without compensation and ownership of BoC will go to uninsured depositors who will see around 40 per cent of their cash go towards rescuing the lender.
The court decision followed another injunction issued by the Supreme Court halting the decision to wipe out all current shareholders.

That decision had been secured by the Church of Cyprus, which is a major shareholder in BoC.
The Cyprus News Agency (CNA) had reported that Cypriot authorities had come to an agreement with international lenders to write-down instead of write off the BoC shares.
CNA also reported that an agreement was also expected over the matter of offsetting deposits against loans.

According to the Eurogroup decision, the island’s second-largest lender, Laiki, will be resolved and its assets transferred to BoC, which will be recapitalised through a haircut on deposits over €100,000.

Deposits under €100,000 in Laiki have been secured but a large chunk of those above could be lost.

vivatifosi

Mr_Mumble wrote: »

Well, British councils for one!

A fair number of non-savvy OAPs are likely to have their life savings in a single 'safe' bank savings account. Many bank customers are very loyal - there's a reason banks give freebies and preferable rates to new students!

I run a limited company so asked my bank, Nat West, what guarantees would be extended to my company in the event the bank went under. They made it perfectly clear that the guarantees extend to personal accounts only, not business ones, no matter how small or entwined with your livelihood. I think a lot of UK companies could be in for a big shock if ever the Cyprus problems extend to here.

ChiefGrasscutter

Well tell your bank to go an' read the fking website of the FSCS
Small business ARE covered.
Medium/Large are not.
No, I've no idea what they define as a small business here - i'll leave that for you to find out: its probably defined as number of employees, turnover, and/or balance sheet.
http://www.fscs.org.uk/what-we-cover/eligibility-rules/


In the meantime:
This is an "interesting document" - relevant to the UK, by the BofE, but curiously on the fdic website
http://www.fdic.gov/about/srac/2012/gsifi.pdf
Clause 17 onwards from page 4..............

antrobus

ChiefGrasscutter wrote: »

Well tell your bank to go an' read the fking website of the FSCS
Small business ARE covered.
Medium/Large are not.
No, I've no idea what they define as a small business here ...

The answer would be in the FSA handbook - COMP 4.2 Who is eligible to benefit from the protection provided by the FSCS? - see http://fsahandbook.info/FSA/html/handbook/COMP/4/2

'Firms' are specifically excluded from FSCS arrangements it seems, unless they are a 'small business', being "a partnership, body corporate, unincorporated association or mutual association with an annual turnover of less than £1 million (or its equivalent in any other currency at the relevant time)".

antrobus

socrates wrote: »

LARGE depositors in Bank of Cyprus will get shares in the bank worth 37.5 per cent of their deposits over €100,000, reports said last night, quoting a government decree.

However, a further 22.5 per cent of the deposits will be turned into a special instrument, which may be used in its entirety or partially to recapitalise the troubled lender at a later stage.

This will not bear any interest. It is understood the haircut will apply to those deposits in the bank at 10pm on March 26.

The remaining 40 per cent will continue to attract interest but has been locked presumably to prevent the immediate flight of capital.

....

So 37.5% gets converted into equity, 22.5% gets converted into some hybrid instrument, and 40% gets frozen? Doesn't that leave 'large depositors' with precisely 0%? Or, as some might say, doodly squat? What are you supposed to do if you're running a business in Cyprus?

Crumbs!

vivatifosi

That's handy thanks guys! I clicked on the link and it said small businesses are those with a turnover under £1m, so no surprises if I say that's me...

Sorry to interrupt the Cyprus thread...

socrates

antrobus wrote: »

So 37.5% gets converted into equity, 22.5% gets converted into some hybrid instrument, and 40% gets frozen? Doesn't that leave 'large depositors' with precisely 0%? Or, as some might say, doodly squat? What are you supposed to do if you're running a business in Cyprus?

Crumbs!

All part of the Big European Experiment - next bit will be the Firesale of all their assets

Looking at it now an 'Iceland' would have been a better option - only problem was the Turks in Northern Cyprus crossing the border and taking it all over

Generali

@socrates - I heard that for about a sixth of houses in Cyprus, the title has never been transferred to the new 'owner' as the developer needs to keep a mortgage against it. This means that in many cases there are 2 mortgages against properties. Any idea if this is true?