CYPRUS savers take 10% hit

[Cardboard]

Putin now has the door wide open. They will do a deal to bailout Cyprus, but they will request in return some form of joint venture on their gas reserves AND they will be able to establish a naval base on the island. You might think that this would not go well with the British who already have two bases in Cyprus but, they won't complain too much because it will allow international forces to go into Syria.

 

Russia has always been in search of a southern, warm port for its navy. It was a main reason to invade Afghanistan. Tartus in Syria offered that and was critical in my view as to why they defended the regime so much. If Assad goes, so much for that port since they are seen by the rebels as the main supporter of the regime. Things are now changing and there is even talk that chemical weapons were used yesterday. The situation is escalating and even Russia can't allow chemical weapons to fall in the hands of muslim extremists for its own protection.

 

However, Putin don't want to be seen as weak and to lose his port in Syria. The Cyprus situation changes all that. A grand bargain will be struck. Russia will get something in return for giving their blessing to go in there.

 

Cardboard

[Alekbaylee]

Interesting...

 

Russia has always been in search of a southern, warm port for its navy. It was a main reason to invade Afghanistan.

 

???

 

 

[Kiltacular]

Putin now has the door wide open. They will do a deal to bailout Cyprus, but they will request in return some form of joint venture on their gas reserves AND they will be able to establish a naval base on the island. You might think that this would not go well with the British who already have two bases in Cyprus but, they won't complain too much because it will allow international forces to go into Syria.

 

Russia has always been in search of a southern, warm port for its navy. It was a main reason to invade Afghanistan. Tartus in Syria offered that and was critical in my view as to why they defended the regime so much. If Assad goes, so much for that port since they are seen by the rebels as the main supporter of the regime. Things are now changing and there is even talk that chemical weapons were used yesterday. The situation is escalating and even Russia can't allow chemical weapons to fall in the hands of muslim extremists for its own protection.

 

However, Putin don't want to be seen as weak and to lose his port in Syria. The Cyprus situation changes all that. A grand bargain will be struck. Russia will get something in return for giving their blessing to go in there.

 

Cardboard

 

You are a smart fellow, Cardboard.  I wish I had had you in my school for "Model United Nations". 

 

You make so many good points here about what is likely happening that I don't know where to start.

 

I'll only add that Russia's support for Syria -- for the reason you cite -- was becoming a real problem for the West as the Assad regime / chemical weapons issue rise to the fore.

 

A real cynic might opine that the whole "game" in Cyprus revolves around giving the excuse for the Russians to come into the game to get their port so that they will cave on Assad / Syria.

[TwoCitiesCapital]

I'm a little late to this discussion now that the Russian bailout appears to be the way they're going; however, I figured I'd toss in my 2 cents since I didn't have the ability to respond at work and this is a good discussion.

cypress is a tax haven right? So a 6.7% one time tax in a tax haven appears to be peanuts to foreign account holders who are paying no income tax.

 

Wrong. As mentioned previously, it's not just Russian oligarchs that will be paying. Secondly, it puts in place a precedent that could be abused in the future. Who is to say they won't do this again in the future. Also, maybe they're Russian criminals, maybe they're not. Why is it their responsibility to foot the losses that should be borne by bondholders and equity holders? This totally upsets the precedence of bankruptcy law and etc. Bondholders and equity holders are the ones who accepted this risk. Not the depositors who thought they were insured. Lastly, and the biggest issue IMO, is that this is a tax so they could receive a bailout loan the size of 50% of their GDP. So the depositors are paying 6.7%-10% so that the citizens (many of them depositors) have the privilege of paying back 50% of GDP at interest.

 

If you lived, or currently live in PIIGS or Cyprus, would you empty your bank account?

 

I never really thought it was possible to make such poor economic decisions. With what is happened in Cyprus, would you keep any more than a tiny minimum bank balance necessary to function if you lived there?  Greece?  Italy, Ireland, Spain?

 

Considering interest rates are nil, it seems there is little incentive to keep money at a bank.  If I were in Cyprus or Greece, I think I would buy a combo lock, hide my cash in a box, and call it a day.  It seems you'd be taking a bigger risk of theft in a bank account than hidden in a locked box.  If I were an Oligarch, I'd be transferring my cash to a more friendly nation like Switzerland.

 

I never thought such pro bank run policy choices could be made...

 

With that said, I'm long EWI, EWP, EIRL, GREK  :)  Maybe I'll scoop up some more if they crater.

 

This. I too am long certain European securities and am looking to increase my exposure, but I'm mainly picking up European assets that have exposure to the emerging markets or real assets.

 

The CYPRUS event is one of the most important of the last 25 years and ranks in line with the Greenspan post 9/11 reduction of rates to 1%, the bernanke AIG bailout and QE, and the Argentina default.

 

The Cyprus event confirms that all this debt will have to be paid. For a country that is not able to print its own currency the debt is paid in the form of a wealth confiscation (the savers prudent capital is unfairly used to pay for fiscal irresponsibility) but as I continue to say, for a country like the US the result will be far worst. But not a nominal confiscation of wealth (the keynsians will never let that occur) but a disgusting inflationary confiscation of the kind that will make the 1970's look like a walk in the park.

 

I disagree. The Cypriotic banking system functions as a massive money laundering system for (mostly) rich Russians. My guess is that the EU made the clawback a requisite for a bailout because they don't want to pay so the 'mobsters' can keep all their money. Cyprus is tiny, can be saved easily, it's just a bit of politics. Basically Europe is saying: "if you stash all your money here, you better help us.". The EU doesn't want to target the local population, they affirmed this today:

The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below EUR 100.000.

 

http://www.forbes.com/sites/afontevecchia/2013/03/18/eu-takes-shot-at-moscow-with-cyprian-haircut-as-russians-own-22-of-deposits/

 

http://www.eurozone.europa.eu/newsroom/news/2013/03/peg-statement-cyprus-18-03-13/

 

Small depositors treated differently then large depositors? Maybe the pay a lesser amount upfront but they'll be the ones repaying the loan at interest, and struggling under the debt burden even more. Just look at Greece. The problem is that EU still can't admit that it has a debt problem. They're still viewing this as a liquidity driven epidemic and treating a problem of insolvency with emergency credit and printing money. Neither one of these is directly addressing reducing the debt and it simply increases the debt load, by a massive amount, at the expense of the tax payers. Default. Bite the bullet and get better.

[Hielko]

Wrong. As mentioned previously, it's not just Russian oligarchs that will be paying. Secondly, it puts in place a precedent that could be abused in the future. Who is to say they won't do this again in the future. Also, maybe they're Russian criminals, maybe they're not. Why is it their responsibility to foot the losses that should be borne by bondholders and equity holders? This totally upsets the precedence of bankruptcy law and etc. Bondholders and equity holders are the ones who accepted this risk. Not the depositors who thought they were insured. Lastly, and the biggest issue IMO, is that this is a tax so they could receive a bailout loan the size of 50% of their GDP. So the depositors are paying 6.7%-10% so that the citizens (many of them depositors) have the privilege of paying back 50% of GDP at interest.

I agree that bondholders and equity holders should be wiped out, but that's not going to solve the problem. You still have a bank that is unable to pay back depositors, and the insurance given to sub 100K accounts isn't very valuable if it's from a practically bankrupt government. You can't create money from thin air: it's at this point in time a lose/lose situation. Tax money need to be spend to save depositors, or depositors are going to lose money. And since the depositors are also the people paying the taxes you have a problem. I think it's fair that depositors are getting a hair cut because it's their money that's going to be saved with the 10B ECB loan, and also non depositors on Cyprus are going to pay for that.

 

Default. Bite the bullet and get better.

Does that make things really better for depositors (or other people in Cyprus)? I'm pretty sure that is going to result in a way bigger loss for depositors that the 10% talked about previously, and it's probably going to create a lot of unnecessary economic damage as well. Banks and the government going bankrupt is going to be ugly since it's going to disrupt a lot of economic activities.

[moore_capital54]

Call me a skeptic, but this Cyprus stuff seems to be a red herring.  Why has the Russian government introduced itself into the conversation?  Maybe this has less to do about the banking system and has more to do with the Russian underworld.  Just a thought.

 

Cheers

JEast

 

The question is then, why is Russia protecting it's tax evaders?  The answer might be, the tax evaders are powerful.

 

The tax evaders are the russian government, even putin has money in Cyprus. Please watch this documentary:

 

 

$230 million stolen from central bank - note where they all traveled: Dubai + Cyprus. Cyprus is where russians wire their stolen money.

 

 

[Palantir]

I love the "Russian port in Cyprus" angle, great point. Nice to see commentary that looks into the subtexts here.

[Cardboard]

Thanks for the kind comments.

 

The EU has given Cyprus till Monday to figure it out. The Turks are also starting to complain about these gas fields situated in the South side of the island or Greek side if you will. They feel they own a share despite the continued dispute on the island and these reserves not being on their side.

 

The Russians use extensively the detroit of Bosphorus in Turkey to leave the Black Sea. They have always been trapped in there especially for their navy. Just imagine the field day for NATO forces during war times. You need to repair or re-arm your SSBN in the winter time? It is the only passage available to them to get to the Atlantic with the North frozen.

 

Still to be seen how this works out. If a port is part of any agreement, don't expect to read about it in the news. Kind of like Kennedy giving up missiles in 1962 in Greece. Maybe it was in Turkey too, I can't recall.

 

Cardboard

[Kiltacular]

Still to be seen how this works out. If a port is part of any agreement, don't expect to read about it in the news. Kind of like Kennedy giving up missiles in 1962 in Greece. Maybe it was in Turkey too, I can't recall.

 

Exactly...this won't be in the news.  You'll have subscribe to something like Stratfor or be really into knowing how these things sometimes end up fitting together.

 

Plus, the best part of this stuff is ruined if Brian Williams is talking about -- then our "conspiracy" theories didn't go deep enough :)

 

Seriously, what you're saying just "fits" the situation.  Out of nowhere (I know, not literally out of nowhere), the Cyprus situation is everywhere.  Virtually contemporaneously, we hear that Assad has / is using chemicals on his people.  The second point puts pressure on Russia.  The first part creates their opportunity.

 

A deal can be struck since all the big money in Cyprus is Russian.  Obviously, including the depositors with less than $100,000 was done to make it front page news and get the excuse for the larger involvement of Russia.  Cause, based on what I saw about the banking system, most of the total dollar amount of money would be in excess of $100,000.  Why include below $100,000 if it both hurts all the little guys and doesn't really help the problem...headlines

 

All can relax, tin-foil hat now back in its box.

 

Still, here's wishing I had Cardboard as my poli sci teacher.  I'd probably had at least a bit part in zero dark thirty. :)

[enoch01]

So this seems like a pretty big deal:

 

http://www.guardian.co.uk/business/2013/mar/22/eurozone-crisis-cyprus-bailout-russia-vote

 

To re-iterate, the decision to approve the capital controls bill means Cypriots are likely to soon face tough restrictions on how much money they can take out of their bank, on access to their own savings, and on their ability to transfer funds.

 

I have been selling significantly since they voted to confiscate a portion of deposits.  I don't see how this doesn't spread to the next weakest areas.

[bathtime]

With the British having a longtime military presence on the island with two prominent bases, not to mention the UN presence, I don't see Russia landing a military base. Neither the British or NATO would be happy and the British aren't going to give theirs up. I can't imagine Cyprus would be pleased either - who wants multiple foreign military bases on your soil?

 

Some financial writer suggested Cyprus workout a bailout from Turkey in exchange for a new peace agreement. Highly unlikely prospect. About as likely to happen as the Democrats and Republicans forming a unity party. There is such deep animosity between the two sides.

 

Stasis is a more powerful force than an outside journalist can see. Since I have personal experience with Cyprus, including family there, it's odd to see it in the headlines daily. For me it illuminates that when countries are put under the the moment to moment microscope of the media in the midst of a financial crisis they can seem otherworldly, a pawn subject to the whims of larger forces. But it's just an ordinary place like everywhere else - change doesn't come easily.

 

 

 

[Guest hellsten]

Have The Russians Already Quietly Withdrawn All Their Cash From Cyprus?

http://www.zerohedge.com/news/2013-03-25/have-russians-already-quietly-withdrawn-all-their-cash-cyprus

 

The answer to the headline is no, but still interesting post:

 

No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors.

 

The stealth withdrawals by Russians of course means that the two megabanks are now utterly drained of capital, and that the haircuts on those who still have unsecured deposits with the two banks will be so big it will likely mean a complete wipeout of all deposits. As in 0% recovery on your deposits!

 

In other words, by now any big Russian funds in Cyprus are long gone, and the only damage accrues to the locals: for one reason because their money over the critical EUR100K threshold has been "vaporized", and for another because the marginal driving force and loan demand creator in Cyprus, the Russians, are gone and are never coming back again.

 

This is what passes for monetary real-politik in the New Normal - an entire nation becomes collateral when pursuing a wealthy group of people. And the "wealthy group" is victorious in the end despite everything...

[petec]

It's truly funny to see all you smart guys try and figure out how to game the inflation. You don't get it you can't evade the inflation when it comes. Physical gold may rise substantially but in that case some type of a windfall tax will be implemented. Owning gold in the ground in the form of a mine or deposit may help as well but that too would be subject to a windfall tax. The crux of the matter is to comprehend and understand that as an investor what you want in such a scenario is to be largely in near cash assets so that you can be ready to deploy the cash at attractive valuations.

 

Inflation is not an event to profited on rather the reconciliation of years worth of folly. It is the moment when the roosters come home. The best thing you can do is crystalize your net worth's today as I have done for myself and my investors. If I am wrong I may miss out on 5-10% percentage points, if I am right I will make 50-100% again over the next 3 years.

 

+1

[petec]

 

Depends on the value proposition. If i increased my prices by 10 percent i would make 50 percent more income due to operating leverage. The price increase would go straight to the bottom line. To increase prices there was to be a reason given to the customers so then they can rationalize it so they are getting the same or greater value proposition.  Coke and very few other companies can increase prices in shealth mode. Would anyone care or really even notice if coke increased there prices by 10 percent tomorrow?  Would the demand suddenly drop? I agree if wages dont increase it would be an issue .  I dont think coke or see's is a discretionary item due to what it represents in the mind( happiness/ v-day). It all depends on the value proposition of the product and what it represents in your mind.  Price is what you pay and value is what you get. In an scenario of high inflation and wages not keeping up. The customer would still buy discretionary items ( This is the US its what we do) only with the greatest value proposition.

 

I've met various Coke bottlers over the years and when their costs rise they can't pass it all on straight away without seeing volumes decline.  They *may* be able to if salaries are rising as fast as costs, but basically it is a discretionary item at the margin.  That said, I still think in the long run it is one of the best inflation *businesses*.  In the short run the *stock* will get crucified as multiples collapse.  Disclosure: long KO and most of its peers, likely for life.

[lookingstill]

 

Depends on the value proposition. If i increased my prices by 10 percent i would make 50 percent more income due to operating leverage. The price increase would go straight to the bottom line. To increase prices there was to be a reason given to the customers so then they can rationalize it so they are getting the same or greater value proposition.  Coke and very few other companies can increase prices in shealth mode. Would anyone care or really even notice if coke increased there prices by 10 percent tomorrow?  Would the demand suddenly drop? I agree if wages dont increase it would be an issue .  I dont think coke or see's is a discretionary item due to what it represents in the mind( happiness/ v-day). It all depends on the value proposition of the product and what it represents in your mind.  Price is what you pay and value is what you get. In an scenario of high inflation and wages not keeping up. The customer would still buy discretionary items ( This is the US its what we do) only with the greatest value proposition.

 

I think this also has a lot to do with the fact that it is a "cheap" product. It is way easier to raise the price 10% on something costing a dollar than on something costing a hundred.

[fareastwarriors]

Ross to Take 'Significant' Part of Bank of Cyprus's 1 Billion-Euro Share Sale

 

 

 

http://www.nytimes.com/reuters/2014/07/29/business/29reuters-bankofcyprus-ross.html?src=busln