Big depositors in Cyprus could lose more

TOUGHER TERMS::Under conditions for the bailout, Bank of Cyprus clients stand to lose more than 60 percent of their deposits of more than 100,000 euros

Reuters, NICOSIA

Sun, Mar 31, 2013 - Page 13

Big depositors in Cyprus’ largest bank stand to lose far more than initially feared under a EU rescue package to save the country from bankruptcy, a source with direct knowledge of the terms said on Friday.

Under conditions expected to be announced yesterday, depositors in Bank of Cyprus would get shares in the bank worth 37.5 percent of their deposits over 100,000 euros (US$128,225), the source said, while the rest of their deposits may never be paid back.

The toughening of the terms will send a clear signal that the bailout means the end of Cyprus as a hub for offshore finance and could accelerate economic decline in the country and bring steeper job losses.

Officials had previously spoken of a loss to big depositors of 30 percent to 40 percent.

Cypriot President Nicos Anastasiades on Friday defended the 10 billion euro bailout deal agreed with the EU five days ago, saying it had contained the risk of national bankruptcy.

“We have no intention of leaving the euro,” the conservative leader told a conference of civil servants in the capital, Nicosia.

“In no way will we experiment with the future of our country,” he said.

However, Cypriots are angry at the price attached to the rescue — the winding down of the country’s second-largest bank, Cyprus Popular Bank, also known as Laiki, and an unprecedented raid on deposits over 100,000 euros.

Under the terms of the deal, the assets of Laiki bank will be transferred to Bank of Cyprus.

At Bank of Cyprus, about 22.5 percent of deposits over 100,000 euros will attract no interest, the source said. The remaining 40 percent will continue to attract interest, but will not be repaid unless the bank does well.

Those with deposits under 100,000 euros will continue to be protected under the state’s deposit guarantee.

Cyprus’ difficulties have sent jitters around the fragile eurozone, and led to the imposition of capital controls in Cyprus to prevent a run on banks by worried Cypriots and wealthy foreign depositors.

Banks reopened on Thursday after an almost two-week shutdown as Cyprus negotiated the rescue package. In the end, the reopening was largely quiet, with Cypriots queuing calmly for the 300 euros they are permitted to withdraw daily.

The imposition of capital controls has led economists to warn that a second-class “Cyprus euro” could emerge, with funds trapped on the island less valuable than euros that can be freely spent abroad.

Anastasiades said the restrictions on transactions — unprecedented in the currency bloc since euro coins and banknotes entered circulation in 2002 — would be gradually lifted. He gave no time frame, but the central bank said the measures would be reviewed daily.

He hit out at banking authorities in Cyprus and Europe for pouring money into the crippled Laiki.

On Friday, easing a ban on check payments, Cypriot authorities said checks could be used to make payments to government agencies up to a limit of 5,000 euros. Anything more than 5,000 euros would require Central Bank approval.

The bank also issued a directive limiting the cash that can be taken to areas of the country beyond the “control of the Cypriot authorities” — a reference to Turkish-controlled northern Cyprus, which considers itself an independent state. Cyprus residents can take 300 euros; non-residents can take 500.

Under the terms of the capital controls, Cypriots and foreigners are allowed to take up to 1,000 euros in cash when they leave the country.