Quote:Cyprus bailout: Kremlin 'could punish Europe' in reprisal for bank levy

Fears mount that Russia could act against European companies if charge on deposits hits €30bn Russian investments

Helena Smith in Nicosia, Simon Goodley and Toby Helm
The Observer, Saturday 23 March 2013 19.20 GMT
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A Russian gas pipeline: a Cyprus bailout levy is unlikely to include a gas cut-off
A pressure valve on a Russian gas pipeline: any retaliation by Russia for a Cyprus bank deposit levy is unlikely to include cutting off gas supplies, according to a former Kremlin adviser. Photograph: Sergei Supinsky/AFP/Getty Images

Fears are growing of Russian reprisals against European businesses as EU authorities desperately seek a deal to save the Cypriot economy by imposing a 25% levy on bank deposits of more than €100,000.

As the island scrambled to put together a rescue programme, its finance minister, Michalis Sarris, said "significant progress" had been made on the latest levy plan in talks with officials from the European Union, the European Central Bank and the International Monetary Fund.

The government in Nicosia faces a deadline of Monday to reach an agreement or the European Central Bank says it will cut off emergency cash to the island, spelling the likely financial collapse of its banking system and a potential exit from the European single currency.

However, with Russian investors having an estimated €30bn (£26bn) deposited in banks on the island, the growing optimism about a deal was accompanied by fears of retaliation from Moscow. Alexander Nekrassov, a former Kremlin adviser, said: "If it is the case that there will be a 25% levy on deposits greater than €100,000 then some Russians will suffer very badly.

"Then, of course, Moscow will be looking for ways to punish the EU. There are a number of large German companies operating in Russia. You could possibly look at freezing assets or taxing assets. The Kremlin is adopting a wait and see policy."

Nekrassov rejected suggestions that Russia might hit back by cutting off gas supplies, a tactic the country used in 2009 after the collapse of talks with Ukraine to end a row over unpaid bills and energy pricing.

"Gas is no longer a weapon," Nekrassov said. "When Russia did that before, it realised that the foreign energy lobby reacted and efforts to find alternative sources were increased. If Russia kept threatening, it knows that nobody would be buying its gas in 20 years' time."

Mike Ingram, an analyst at City broker BGC Partners, said: "In Russia, historically, if they want an asset they just grab it. If they want cash out of a [EU] business [in Russia] they just create a tax bill or raid offices and make your life unpleasant. They could also make life difficult diplomatically on issues such as Syria. They might also rattle a few sabres over deployment of the missile defence system."

In a week of high-stakes brinkmanship, the EU, ECB and IMF the so-called "troika" behind the rescue of five southern European countries had refused to budge on its insistence that Cyprus raise €5.8bn of its own revenues to qualify for the bailout aid.

The latest levy plan reflected Nicosia's fast-dwindling options.

Last week Cypriot MPs overwhelmingly rejected a similar levy proposal even after it was adjusted to remove any charge on savings below €20,000 triggering a week of tumult as Nicosia tried and failed to win financial support from Russia instead.

The tax on savings is unprecedented in Europe's handling of a debt crisis that has spread from Greece to Ireland, Portugal, Spain and Italy. The crisis has reignited uncertainty about the future of the eurozone just as many EU leaders began to believe the worst was over for the single currency.

On Saturday, uncertainty shrouding the island turned from unease on the streets, where people have rushed en masse to withdraw money from cash machines, to scenes of panic-buying.

The inept handling of the crisis by politicians has exacerbated a dark mood with many Cypriots fearing that they stand to lose life savings following the government's decision to also raise funds by restructuring Laiki, the island's second biggest bank.

Marios Panayides, 65, a protester outside the Cypriot parliament said: "Our so-called friends and partners sold us out. They have completely abandoned us on the edge of an abyss."

Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. "At the moment, supplies will last another two or three days," said Adamos Hadijadamou, head of Cyprus's Association of Supermarkets. "We'll have a problem if this is not resolved by next week."

Cypriots fear the damage the levy would do to the country's offshore banking industry. Much of the Cypriot banks' capital was wiped out by the collapse of investments in Greece, the epicentre of the euro zone debt crisis.

Jan Klimkowski Wrote:The Russians will retaliate.

Perhaps by multiple means.

Maybe Angela Merkel and Christine Lagarde will start glowing radioactively at an international summit....

Quote:Cyprus bailout: Kremlin 'could punish Europe' in reprisal for bank levy



Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. "At the moment, supplies will last another two or three days," said Adamos Hadijadamou, head of Cyprus's Association of Supermarkets. "We'll have a problem if this is not resolved by next week."

Magda Hassan Wrote:

Jan Klimkowski Wrote:The Russians will retaliate.

Perhaps by multiple means.

Maybe Angela Merkel and Christine Lagarde will start glowing radioactively at an international summit....

Quote:Cyprus bailout: Kremlin 'could punish Europe' in reprisal for bank levy



Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. "At the moment, supplies will last another two or three days," said Adamos Hadijadamou, head of Cyprus's Association of Supermarkets. "We'll have a problem if this is not resolved by next week."

Hungry people are very angry people.

Quote:Eurogroup's Dijsselbloem Says "Banks Should Save Themselves"

Submitted by Tyler Durden on 03/25/2013 12:05 -0400 Zero Hedge


The by-now infamous Dutch FinMin Jeroen Dijsselblom - and head of the Eurogroup of finance chiefs - made some fascinating comments this morning with Reuters and the FT that are changing the shape of European markets rapidly. From banks need to save themselves to forcing "all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realize that it may also hurt them," he is making a lot of sense - though we suspect Mr. Draghi will not be amused as his 'promise' looks like being tested. Simply put, Dijsselblom is saying that a balance sheet can be 'normalized' not only by boosting assets (courtesy of the ECB) but by collapsing liabilities (or remarking bad loans to market) - something that no one in power has admitted to date. While this is upsetting to markets - so used to the visible hand of central planning saving themfrom themselves - this is very positive step for 'real people' as taxpayers appear to be 'off the hook' and the responsible parties beginning to be punished.

Via Bloomberg:
Dijsselblom's direct quotations in the interview were confirmed by his spokeswoman, Simone Boitelle.

"What we've done last night is what I call pushing back the risks," Dijsselbloem says in the interview



"If there is a risk in a bank, our first question should be Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?'. If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders," he says



"If we want to have a healthy, sound financial sector, the only way is to say, Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on,'" he says



"The consequences may be that it's the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take," he says



"It means deal with it before you get in trouble. Strengthen your banks, fix your balance sheets and realise that if a bank gets in trouble, the response will no longer automatically be that we'll come and take away your problem. We're going to push them back. That's the first response we need. Push them back. You deal with them," he says



"We should aim at a situation where we will never need to even consider direct recapitalization," he says



"If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller," he says



"I think the approach needs to be, let's deal with the banks within the banks first, before looking at public money or any other instrument coming from the public side. Banks should basically be able to save themselves, or at least restructure or recapitalise themselves as far as possible," he says



"Now we're going down the bail-in track and I'm pretty confident that the markets will see this as a sensible, very concentrated and direct approach instead of a more general approach," he says



"It will force all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realise that it may also hurt them. The risks might come towards them," he says

Quote:Eurogroup Head Says He Did Not Say What He Said

Submitted by Tyler Durden on 03/25/2013 13:56 -0400 Zero Hedge

That thing Diesel-BOOM very, very clearly said earlier? He did not say it. After all, can't have the market getting any ideas that reality may be slowly coming back to the basket case that is Europe:

EU DIJSSELBLOEM SPOKESWOMAN: DIJSSELBLOEM DIDN'T SAY CYPRUS A TEMPLATE FOR BANK RESTRUCTURINGS - DOW JONES

So not only are European depositors still impairable, because sadly Dijsselbloem was dead serious in his Reuters interview, but the new Eurogroup head pulled a Juncker and confirmed "it is serious" in the process losing all credibility too.

To summarize Diesel-BOOM: "If the market is red, you have to lie."

Forget Risk-On-Risk-Off, it's Template-On-Template-Off now...

His subsequent official clarifying remarks on the Eurogroup's website:

Statement by the Eurogroup President on Cyprus



25/03/2013 - Statement



Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday.



Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.

Magda Hassan Wrote:

Jan Klimkowski Wrote:

Magda Hassan Wrote:Does keeping the bank doors closed make any difference to electronic transfers out to other safe havens?

"Toto, I've a feeling we're not in Kansas anymore."

Maybe the Yellow Brick Road goes to Moscow....

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

Submitted by Tyler Durden on 03/25/2013 17:00 -0400
Zero Hedge

Yesterday, we first reported on something very disturbing (at least to Cyprus' citizens): despite the closed banks (which will mostly reopen tomorrow, while the two biggest soon to be liquidated banks Laiki and BoC will be shuttered until Thursday) and the capital controls, the local financial system has been leaking cash. Lots and lots of cash.

Alas, we did not have much granularity or details on who or where these illegal transfers were conducted with. Today, courtesy of a follow up by Reuters, we do.

The result, at least for Europe, is quite scary because let's recall that the primary political purpose of destroying the Cyprus financial system was simply to punish and humiliate Russian billionaire oligarchs who held tens of billions in "unsecured" deposits with the island nation's two biggest banks.

As it turns out, these same oligrachs may have used the one week hiatus period of total chaos in the banking system to transfer the bulk of the cash they had deposited with one of the two main Cypriot banks, in the process making the whole punitive point of collapsing the Cyprus financial system entirely moot.

From Reuters:

While ordinary Cypriots queued at ATM machines to withdraw a few hundred euros as credit card transactions stopped, other depositors used an array of techniques to access their money.



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.

So while one could not withdraw from Bank of Cyprus or Laiki, one could withdraw without limitations from subsidiary and OpCo banks, and other affiliates?

Just brilliant.

And if there was any doubt that the entire process of destroying one entire nation was simply to punish Cyprus, it can be completely cleared away now:

ECB officials contacted Latvia, another EU country that has received large Russian deposits, to warn authorities against taking in Russian money fleeing Cyprus, two sources familiar with the contacts said.



"It was made clear to our Latvian friends that if they want to join the euro, they should not provide a haven for Russian money exiting Cyprus," a euro zone central banker said.

If one thinks there is any material Russian cash therefore left in Cyprus with this epic loophole in place, we urge them to make a deposit in the insolvent nation. One person who certainly will not be allocating any of his money into Bank of Cyprus is German FinMin Schaeuble:

German Finance Minister Wolfgang Schaeuble said the bank closure had limited capital flight but that the ECB was looking closely at the issue. He declined to provide figures.

Perhaps because if he did, it would become clear that the only entities truly punished by this weekend's actions are not evil Russian billionaires, but small and medium domestic companies, and other moderately wealthy individuals, hardly any of them from the former "Evil Empire."

Companies that had to meet margin calls to avoid defaulting on deals were granted funds. Transfers for trade in humanitarian products, medicines and jet fuel were allowed.

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...

If we were Cypriots at this point we would be angry. Very, very angry.

Jan Klimkowski Wrote:

Magda Hassan Wrote:

Jan Klimkowski Wrote:

Magda Hassan Wrote:Does keeping the bank doors closed make any difference to electronic transfers out to other safe havens?

"Toto, I've a feeling we're not in Kansas anymore."

Maybe the Yellow Brick Road goes to Moscow....

Yep - the crooks of the IMF and Bundesbank have lost out to the crooks of Russia.

The oligarchs' filthy lucre is GONE!!!!!

Quote: 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.

So while one could not withdraw from Bank of Cyprus or Laiki, one could withdraw without limitations from subsidiary and OpCo banks, and other affiliates?

Just brilliant.

Quote:ECB officials contacted Latvia, another EU country that has received large Russian deposits, to warn authorities against taking in Russian money fleeing Cyprus, two sources familiar with the contacts said.

"It was made clear to our Latvian friends that if they want to join the euro, they should not provide a haven for Russian money exiting Cyprus," a euro zone central banker said.

Quote:If we were Cypriots at this point we would be angry. Very, very angry.

A Word Out Of Place Sends Europe Tumbling

• "Cyprus a Template For EU"
  

Cyprus The nuclear' option

Germany to Cyprus: your banks might never re-open