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« Father Of The Euro: "Italy Is Next After Cyprus" | Main | Argentina Desperate For Gold To Fight 25% Inflation »
Tuesday
Mar262013

Cyprus President Explains Theft To Nation

Nicos says the bailout is painful.

Speech from last night on why the EU is stealing from Cypriot accounts.

Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe's single currency by propping up failing banks, a senior eurozone official has announced.  Read more here...

Here's a suggestion from us, Nicos.

Punish the bondholders who made the risky bets and not the depositors who did nothing more than commit the egregious sin of trusting the banking system.

Cyprus should have followed Denmark's example.  This my friends is exactly how you conduct a multi-billion dollar bank bailout.

 

---

Update from the WSJ.

Senior Bondholders Look Warily at Cyprus Rescue (Google link to avoid paywall)

Dutch Finance Minister Jeroen Dijsselbloem, who heads the euro-zone finance ministers, reportedly said Monday that Cyprus's bailout deal could serve as a template for resolving future bank restructurings in Europe.

Up until now, senior bank bondholders in the euro zone had been exempted from taking losses on their investment, leaving taxpayers to take the brunt of the responsibility for supporting failed banks. The concern had been that touching senior bonds, a cornerstone of European bank funding, could rattle confidence across the region's financial system.

The forced losses on senior bondholders could return to haunt policy makers if stresses worsen in other fiscally-shaky euro states in the future, with investors in smaller lenders at the highest risk.

"The very public debate that has taken place has made it clear to everyone that bank creditors, all the way down to depositors, should expect to pay in future bailouts."

Most of Cyprus's contribution will come from deposits over €100,000 and junior bank bondholders. The total amount of senior Cypriot bank bondholders is small. According to European Central Bank data, Cypriot banks have issued €1.7 billion of debt securities, of which analysts estimate just €200 million is senior debt.

In Ireland's bailout, the troika—the IMF, the European Commission and the ECB—obliged the government to pay back senior bank bondholders. In all, Ireland pumped in €64 billion, equivalent to 40% of its economic output, to keep a broken banking system from collapse over the past five years. A significant part of those sums helped pay back international bank bondholders across six Irish banks.

While not in the euro zone, losses had been previously imposed on senior bank debtholders in Iceland and Denmark. The latter involved losses on two small Danish banks, Fjordbank Mors and Amagerbanken, in 2011. In 2008 Iceland nationalized its banks, completely wiping out the debt.

 

 

Earlier:

WATCH: Cyprus Man Threatens Bank With Bulldozer

 

 

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Reader Comments (8)

Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe's single currency by propping up failing banks, a senior eurozone official has announced.

http://www.telegraph.co.uk/finance/financialcrisis/9952979/Cyprus-bail-out-savers-will-be-raided-to-save-euro-in-future-crises-says-eurozone-chief.html
Mar 26, 2013 at 11:46 PM | Registered CommenterDailyBail
I saw this comment on another site and thought it was interesting b/c I've been thinking the same since the deal was announced. Here's the comment.

"As jim rogers has pointed out time and time again, banks need to go under if they cant stand on their own........small depositors get protected under banking laws, and the rest have to eat it......its not a perfect world but at least if these consequences were allowed to unfold the way they are supposed to, banks will think twice about risk the next time and debt gets wiped out....and the world can move onto the next chapter."

DB here again. Essentially the EU is doing to Cyprus what Iceland did to its banks and to depositors in the UK and elsewhere. And of course everyone applauds Iceland so why is no one applauding the EU. A couple of reasons - Iceland made the decision on its own and it wasn't forced on them by some outside entity like the EU, and second, Cyprus and the EU are picking winners and losers among the banks and the bondholders and shareholders are not being completely wiped out before turning to depositors.

Interested to hear how others see it b/c this is basically what we've been asking for all along in the U.S. -- let the insolvent banks fail and force bondholders and not taxpayers to take the hit. If depositors get hit, then it's their fault for having more than the FDIC limit in their account.
Mar 26, 2013 at 11:57 PM | Registered CommenterDailyBail
They actually do plan to whack bondholders, but Cyprus' banks had very little bond debt (senior or otherwise) on their balance sheets. The bulk of their liabilities were from deposits AND lending from the ECB. Senior bond debt was less than a Billion. Not a penny of loans from the ECB will be touched. THAT is precisely who should take the losses -- the very same mf's who told Cypriot banks it was safe to buy and hold Greek bonds.

Meanwhile Dijsselbloem is preening about how Cyprus is the new model for Europe going forward. My ass, it will be. It's just more of the make-it-up-as-you-go-along bullshit they've been practicing for the last 5 years. The boys in Brussels probably got some jollies by sticking it to the Cypriots, making bold pronouncements and whatnot, but no way will they let a large Spanish or Italian bank wipe out bondholders. No effing way.

http://online.wsj.com/article/SB10001424127887324789504578382154064532558.html

BTW, someone pointed out that the capital the new bank needs is roughly equivalent to the money it owes to the ECB. If anyone in Cyprus had big enough balls, they could just call the EU's bluff and say, "There you go boys, we lost X Billion on Greek bonds, thanks to you, and so we'll just take that amount off of what we owe you. Thanks very much."
Mar 26, 2013 at 11:58 PM | Unregistered CommenterDr. Pitchfork
Pitch

Great link. I added it to the story.

Most of Cyprus's contribution will come from deposits over €100,000 and junior bank bondholders. The total amount of senior Cypriot bank bondholders is small. According to European Central Bank data, Cypriot banks have issued €1.7 billion of debt securities, of which analysts estimate just €200 million is senior debt.

In Ireland's bailout, the troika—the IMF, the European Commission and the ECB—obliged the government to pay back senior bank bondholders. In all, Ireland pumped in €64 billion, equivalent to 40% of its economic output, to keep a broken banking system from collapse over the past five years. A significant part of those sums helped pay back international bank bondholders across six Irish banks.

While not in the euro zone, losses had been previously imposed on senior bank debtholders in Iceland and Denmark. The latter involved losses on two small Danish banks, Fjordbank Mors and Amagerbanken, in 2011. In 2008 Iceland nationalized its banks, completely wiping out the debt.
Mar 27, 2013 at 12:04 AM | Registered CommenterDailyBail
Pitch

I had forgotten about the billion in greek debt purchased at the recommendation of the ECB. Looking for more on that loan now.
Mar 27, 2013 at 12:13 AM | Registered CommenterDailyBail
DB, we were posting at the same time. Yeah, I'm not opposed to the Cyprus model in general. As you point out, though, it's the fact that the "solution" is being imposed from the outside that makes it more odious. Plus, there is no guiding principle to any of this other than "save the Euro." And yet, whacking depositors like they've done is probably one of the most stupid moves you could make if you were trying to save the Euro. I personally would not hold money in a Spanish or Italian bank right now, thanks to what happened in Cyprus.
Mar 27, 2013 at 12:31 AM | Unregistered CommenterDr. Pitchfork
Cyprus Was a Very Unique Case Dijsselbloem

http://www.youtube.com/watch?v=dls0Q4lsmqI

Here he backtracks. I have more coming on this.
Mar 27, 2013 at 12:43 AM | Registered CommenterDailyBail
Didn't Cypress have to pay to join the EU? Where is the gain there? If you are in Spain wouldn't you want to pull your monies out and get into something else? There was an article that suggested that these two Cypriot banks were left open in other countries, the implication being that larger investors were able to pull their money out while the stiffs in Cypress were left to one hundred EU's a day. In regards the FDIC DB, there most certainly is not enough money there to cover all of the smaller deposits that this country has. I would bet that if something were to happen, there would be a total wash of depositers money.
Mar 27, 2013 at 7:19 AM | Unregistered CommenterSKINFLINT

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