Pirates of the Mediterranean 0
Der Spiegel attempts to clarify what’s going on in Cyprus. The short version is that the banks blew it (sound familiar?) and now want the people who trusted them to pay the price. If you are puzzled by the headlines, I recommend the article highly.
A nugget on why there is pressure to tax the depositors–they are the only persons the banks have not yet screwed:
- The bank’s investors have already lost massive shares of their investments. In the fall of 2011, the three biggest financial institutions still had a market capitalization of €2.4 billion, but it has since fallen to €500 million. Since mid-2012, the Cypriot government has owned 84 percent of Laiki Bank. By then, private investors were only still in possession of shares that held a total value of several million euros. Major shareholders at other banks also have relatively little to contribute to any rescue package. Just take billionaire Russian investor Dmitry Rybolovlev, who owns 5 percent of the Bank of Cyprus. In recent months, he has had to sit back and watch as the value of his holding shrank to around €20 million.
- Holders of bank bonds were to be next in line to be held liable for the bailout. They lent money to the financial institutions and had to assume that, in the worst case, they wouldn’t get it back. In a passage that attracted little attention over the weekend, the Euro Group also announced that second-tier bonds would also be seized as part of the restructuring program. Those possessing Tier-1 guaranteed bonds would not be hit. Still, it is doubtful that this channel would suffice to raise the €5.8 billion needed. Cypriot banks have long relied on the gigantic deposits held in their accounts and have not needed to issue large quantities of bonds to raise cash. As such, there is a paucity of bonds that could now be seized as part of a restructuring program.
- This leaves the depositors. This is by far the largest single source of potential money. Statistics collected by Greece’s central bank suggest that some €68 billion is deposited in Cypriot banks. Around €25 billion of that sum originated from foreign depositors, a large share of them from Russia and Ukraine. This is where the so-called “one-off stability levy” rejected on Tuesday by the Cypriot parliament was supposed to be applied.
