Russia: No bailout for big Cyprus depositors

posted at 9:21 am on April 1, 2013 by Ed Morrissey

Not that Russia didn’t try, mind you.  Gazprom attempted an eleventh-hour white knight proposal that would have recapitalized Cyprus’ teetering banking system and allowed depositors to remain whole, but would have grabbed the natural-gas rights of the island in return.  Instead, Cyprus used that last remaining leverage to protect the guaranteed depositors, while delivering a big blow to large depositors who took advantage of Cyprus’ lax regulations.  Russia has now told those Russians in that group that they have no intention of cushioning the blow:

The Russian government says it will not compensate Russian savers who have lost money in the Cyprus banking crisis.

Russians are believed to have billions of euros in Cypriot accounts and deposits above 100,000 euros (£84,300; $128,200) in the two biggest banks could be reduced by as much as 60%.

Such losses would be “a great shame”, First Deputy PM Igor Shuvalov said, “but the Russian government won’t take any action in that situation”.

The only exception to that will be where the depositors are — ahem — partners to the Russian government:

Speaking on the Russian state TV channel Rossiya 1, Mr Shuvalov said Russian money in Cyprus included some that had been taxed and some that had not.

He said the Russian government would still look at cases where there were “serious losses, involving companies in which the Russian state is a shareholder”. That review would take place in Russia, and “for this it would certainly not be necessary to help the Republic of Cyprus”, he said.

The message? Bring us in on your little venture and we’ll offer you … protection.  The only difference between that and the kind of business Paul Cicero did in Goodfellas is that the Russian government probably does fewer bust-outs.

The news got worse over the weekend for the big depositors.  At first, the assumption was that they might lose 30-40% of their assets above the guarantee level of €100,000.  Now it’s looking more like 60%:

Depositors in Cyprus with savings of more than 100,000 euros ($128,000) could face losses of up to 60 percent, under tough conditions attached to an international bailout, Finance Minister Michalis Sarris said Saturday.

The deal would force large depositors at the country’s two largest lenders – Bank of Cyprus and Laiki – to take heavy losses, while smaller deposits would be guaranteed.

A mandatory one-off tax on deposits of more than 100,000 euros in return for shares in Bank of Cyprus would bring a 37.5 percent decrease in value.

Depositors could also lose an additional 22.5 percent, Sarris told RIK state television, if it is determined that more funds are needed to save the bank.

And what if that’s not enough?  Let’s just say that all your deposits are now belong to us.  If you are wondering what this is doing for the reputation of the euro, let’s also just say that it’s becoming as popular as a steak sandwich at a PETA rally:

Countries in the developing world are drastically reducing their euro holdings as economic instability in Europe leads them elsewhere to stock their currency reserves. Euro holdings are at their lowest level in a decade, according to the International Monetary Fund.

When the euro was first launched on Jan. 1, 1999, there were hopes in Europe that it might soon rival the US dollar as the world’s premier reserve currency. And initially, it seemed that dream was not unrealistic, as countries around the world began filling their coffers with the European common currency.

Now it looks as though that trend is beginning to reverse, though. Following years of crisis, developing countries are beginning to look elsewhere for their reserve currency needs — and have spent the last year and a half shedding euros.

That is the message to be gleaned from the latest installment of the regular International Monetary Fund report on currency reserves held by countries around the world. According to the report, developing economies shed some $45 billion worth of euros in 2012 and have sold close to $90 billion worth of euros since the second quarter of 2011.

The numbers seem to indicate that the ongoing euro crisis, fueled by high sovereign debt loads in several countries belonging to the common currency union, has eroded global confidence in the euro. During the same period, US dollar holdings among developing economies have continued to rise.

That’s not a compliment to the dollar, but merely a statement on the lack of solid options in the marketplace now.


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The greatest irony in Obama’s America is the collapse of other socialists countries is strengthening the US dollar.

rob verdi on April 1, 2013 at 9:25 AM

That and the explosion in fossil fuel development is leading an industrial revival.

rob verdi on April 1, 2013 at 9:26 AM

I sense a theme in the pictures. This one is kind of nice.

That’s not a compliment to the dollar, but merely a statement on the lack of solid options in the marketplace now.

Go figure.

cozmo on April 1, 2013 at 9:27 AM

And the Eurozone crisis continues its effects everywhere, as this morning I check my savings account and see that I earned $1.47 in interest over the month of March, on $10,000. This witheringly bad environment for interest means that it’s losing ground every single month due to inflation. Too bad low-info voters who are struggling on fixed incomes and wondering, “What happened to the interest I was going to count on for retirement?” don’t get it. Poor policies anywhere are a threat to public solvency everywhere.

JoseQuinones on April 1, 2013 at 9:27 AM

The only difference between that and the kind of business Paul Cicero did in Goodfellas is that the Russian government probably does fewer bust-outs.

Actually, I’ll bet that the Russian government does more bust-outs.

That’s not a compliment to the dollar, but merely a statement on the lack of solid options in the marketplace now.

The United States dollar: the least unstable currency out there.

That’s a winning slogan.

rbj on April 1, 2013 at 9:31 AM

If you are wondering what this is doing for the reputation of the euro, let’s also just say that it’s becoming as popular as a steak sandwich at a PETA rally:

Even back in 1998, I was saying that the Euro is one of those things that look great on paper but are a mistake. Yes, from a purely economic viewpoint, common currency makes sense. The only problem is that the economic viewpoint ignores the cultural, societal, and historical aspects of the nations involved.

Happy Nomad on April 1, 2013 at 9:33 AM

I sense a theme in the pictures. This one is kind of nice.

cozmo on April 1, 2013 at 9:27 AM

I much prefer a picture from the best Brosnan Bond flick over any shot of Jim Carrey.

Doughboy on April 1, 2013 at 9:35 AM

I’m not sure why they’re stopping at 60%. Why not just take 100%?

It’s clear that the government won’t get a second crack at the money in these accounts, so just seize all of it while they have the chance.

Don’t leave any account, unless it belongs to the political class or crony business partners. Everyone else loses.

Nethicus on April 1, 2013 at 9:36 AM

Think for a moment how many times our leftist-dominated entertainment media have portrayed as “crazy” anyone who doesn’t trust banks, and keeps money stuffed in a mattress or buried in his back yard (like Silas Robertson just last week on Duck Dynasty). Glenn Beck is “nuts” because he tells people to have an emergency food supply. “Survivalists” are serial murderers and cannibals, according to the preview for the next episode of CSI.

Anyone who dares try to be self-sufficient and able to survive a natural disaster or civil unrest has to be mocked, lest large numbers of people follow suit.

The Monster on April 1, 2013 at 9:38 AM

You know they have whole web site of beautiful Russian women. They have Russian language social sites too.

They are somewhat populated with USA guys who write in fluent Russian. Many from the DC area. At least that used to be the case.

Putin probably thinks they are CIA.

IlikedAUH2O on April 1, 2013 at 9:40 AM

And the Eurozone crisis continues its effects everywhere, as this morning I check my savings account and see that I earned $1.47 in interest over the month of March, on $10,000.

JoseQuinones on April 1, 2013 at 9:27 AM

Same situation here. The wife and I have managed to save up a lot of money in our savings account by being frugal and can’t even break 2 bucks in interest each month. I think our entire interest income for 2012 that we reported to the IRS was 19 bucks and change.

Doughboy on April 1, 2013 at 9:40 AM

…who cares?

KOOLAID2 on April 1, 2013 at 9:43 AM

As I posted on the gun control thread the Cypriot president and his family got all their money out.

dogsoldier on April 1, 2013 at 9:44 AM

Nethicus on April 1, 2013 at 9:36 AM

Effectively, if you own a business and can only get at 300 Euwos a day it may as well be 100%. What’s left of your money is here but you can’t have it! Nyah Nyah, n’ nyah nayh!

They have very strict gun controls there. No handguns or rifles. All you can own is Joe Biden’s fave.

dogsoldier on April 1, 2013 at 9:48 AM

JoseQuinones on April 1, 2013 at 9:27 AM

Take heart, you can always withdraw everything and stash it in the cellar.

Most of my banking is through credit unions. I did some transferring of funds yesterday and noticed that the savings account now pays the same interest as the checking: .1% or in other words, pretty much nothing.

I sold a gun last week for a $2500 that originally cost me $250…there’s a message in there somewhere.

Bishop on April 1, 2013 at 9:51 AM

I think our entire interest income for 2012 that we reported to the IRS was 19 bucks and change.

Doughboy on April 1, 2013 at 9:40 AM

On the positive side, if your interest income is less than 10 bucks you don’t have to report it.

Archivarix on April 1, 2013 at 9:53 AM

As I posted on the gun control thread the Cypriot president and his family got all their money out.

dogsoldier on April 1, 2013 at 9:44 AM

As did the Russians, which seems to be the real reason they withdrew their Gazprom offer. Seems that while the Cypriot banks were closed, the Russian branches of those same banks remained open. So its basically mostly Cypriot businesses getting stuck.

Fenris on April 1, 2013 at 10:00 AM

“This time, Mistah Bond, the pleasure will be all mine!”

Rowl.

thebrokenrattle on April 1, 2013 at 10:03 AM

On the positive side, if your interest income is less than 10 bucks you don’t have to report it.

Archivarix on April 1, 2013 at 9:53 AM

But it was just under twice that amount, so we were forced to report it.

Doughboy on April 1, 2013 at 10:06 AM

The message here is that one should work hard, live within one’s means, and become thrifty in saving for a rainy day. You never know when the government is going need and steal from you to keep massive entilement programs running. Those parasites don’t feed themselves you know. In the meantime your less thrifty neighbors are taunting you…. saving’s for losers.

Happy Nomad on April 1, 2013 at 10:07 AM

Step N+1: People switching to cash-only operation to bypass both banks and government.
Step N+2: Government chasing after individual businesses for tax dodging.
Step N+3: People sabotaging infrastructure as a way to get back at the government.
Step N+4: Martial law, public executions, forced labor camps.

You know what goes next, right?

Archivarix on April 1, 2013 at 10:07 AM

But it was just under twice that amount, so we were forced to report it.

Doughboy on April 1, 2013 at 10:06 AM

That’s because you’re still a fat cat capitalist, making 0.1% on it. Not for long, buddy.

Archivarix on April 1, 2013 at 10:08 AM

That’s because you’re still a fat cat capitalist, making 0.1% on it. Not for long, buddy.

Archivarix on April 1, 2013 at 10:08 AM

True. I guess we got what we deserved and were forced to pay our “fair share”.

Doughboy on April 1, 2013 at 10:16 AM

That’s because you’re still a fat cat capitalist, making 0.1% on it. Not for long, buddy.

Archivarix on April 1, 2013 at 10:08 AM

They’re 0.1%’ers. I bet Doughboy plays golf about once a year, whether he needs to or not.

BobMbx on April 1, 2013 at 10:18 AM

Step N+1: People switching to cash-only operation to bypass both banks and government.
Step N+2: Government chasing after individual businesses for tax dodging.
Step N+3: People sabotaging infrastructure as a way to get back at the government.
Step N+4: Martial law, public executions, forced labor camps.

You know what goes next, right?

Archivarix on April 1, 2013 at 10:07 AM

Libfree and KeninCT become our overlords?

Bishop on April 1, 2013 at 10:20 AM

Fenris on April 1, 2013 at 10:00 AM

Yes.

Libfree and KeninCT become our overlords?

Bishop on April 1, 2013 at 10:20 AM

Something like that. People just like them already are, in a manner of speaking.

dogsoldier on April 1, 2013 at 10:26 AM

What is the cover pic from anyway?

Free Indeed on April 1, 2013 at 10:28 AM

What is the cover pic from anyway?

Free Indeed on April 1, 2013 at 10:28 AM

Goldeneye. That’s Xenia Onatopp and James Bond

thebrokenrattle on April 1, 2013 at 10:30 AM

The island of Cyprus is about half Greek and half Turkish. Given the wonderful state of the Greek financial system, none of this is surprising.

Steve Z on April 1, 2013 at 10:42 AM

The irony here is that it takes an ex-KGB strongman to show the world how capitalism is supposed to work: by rewarding and punishing risk without mitigation and allowing the wealthy and well connected to eat their own damn losses in the market. If only we could see such “socialism” here in America.

abobo on April 1, 2013 at 10:56 AM

The island of Cyprus is about half Greek and half Turkish. Given the wonderful state of the Greek financial system, none of this is surprising.

Steve Z on April 1, 2013 at 10:42 AM

Greek finance + Turkish hospitality = WINNING!!!

abobo on April 1, 2013 at 10:57 AM

Is Gazprom Russian for Solyndra?

unclesmrgol on April 1, 2013 at 11:07 AM

The irony here is that it takes an ex-KGB strongman to show the world how capitalism is supposed to work: by rewarding and punishing risk without mitigation and allowing the wealthy and well connected to eat their own damn losses in the market. If only we could see such “socialism” here in America.

abobo on April 1, 2013 at 10:56 AM

Huh? Only the not-very-well-connected rich will suffer. Putin’s friends won’t. This is not the legal system you were looking for….

unclesmrgol on April 1, 2013 at 11:09 AM

unclesmrgol: Is Gazprom Russian for Solyndra?

I think Gazprom translates closer to Keystone.

Terp Mole on April 1, 2013 at 11:11 AM

The bigger story was that Nicossia was able to nail down an EU assistance package without signing away immensely lucrative gas revenues to Russia. Banks will be shuttered and restructured, loans will be taken and high-end depositors will face losses– but natural gas revenues were taken off the table.

With claims to what has been estimated to be worth $400B over the coming years, Cyprus has emerged as a new energy player in the Mediterranean over the past three years. Offering access to an estimated 50 to 60 tcf of gas and 1.7 billion barrels of crude in waters off its southeastern coast, Cyprus presented Europe with the kind of reserves that could finally ease dependence on Russia, not to mention meet and exceed domestic demand. Natural gas presented the surest way to rebound for a country with little else to rely on than a modest tourism sector and a bloated and unsustainable banking system.

Lesson for Obama is that exploiting lucrative oil and gas reserves remains a reasonable alternative to government-assisted bank robbery.

Drill, baby, drill.

Terp Mole on April 1, 2013 at 11:14 AM

With claims to what has been estimated to be worth $400B over the coming years, Cyprus has emerged as a new energy player in the Mediterranean

…I hasten to add;

Israel Taps an Offshore Natural Gas Field

Israel moved closer to its goal of energy independence on Sunday as natural gas from a large offshore field began flowing into the country, a harbinger of important change that will benefit the country strategically and economically, officials said…

/game changer

Terp Mole on April 1, 2013 at 11:17 AM

Euros loves them some totalitarian government!!

jukin3 on April 1, 2013 at 11:36 AM

I dont get what the fuss is all about, bail in or bail out- this means nothing. The reality is that there is no money left in those banks, they gambled it away on cheap Greek debt, and “now its gone”. Now the whole debate is about if somebody will step in and reimburse those, who gave their savings to fuel this bad investment and how much the garanty for deposits worth nowdays. If you want a little history for a decade preceding this, Cyprus banks were offering much higher interest then the rest of europe, but got so many deposits, that they had to go into more and more risky investments to keep providing those higher interest payments and pay themselves bonuses based on the amount of savings attracted. Basically, now to pay for the garanteed deposits, Cyprus asking EU to step in, but EU says, if they are to do this, there is no way they are going to pay for not garanteed deposits (or more than was contractually obligated). CypRIOTs should put riot back in their country name and start putting handcuffs on those who gambled their money away, but alas, they have tough gun controls and sheep is not just whats for dinner.

anikol on April 1, 2013 at 12:27 PM

Is Gazprom Russian for Solyndra?

unclesmrgol on April 1, 2013 at 11:07 AM

No, quite the crony-capitalistic oligarchy that makes money as it uses its product as a diplomatic tool with potent political/economic leverage. It’s where retired politicians, public servants, i.e. ambassadors go after public service, alsong with Rozneft etc, and not just Russians, even some of the Euro pols as well, including a former socialist German Chancellor.

We were consulted in helping Gazprom pick a locatin for their German HQ in Berlin, back in the late 90s. We identified a couple of locations in Mitte near Friedrichestrasse & Unten Den Linden. They finally picked a spot that may be more symbolic to their perspective, just south of the Wall and 2 blocks East of Checkpoint Charlie and just west of the Axel-Springer building. That building used to tick off the DDR for being such a visual testament day & night to Western values during its hey-day. Nonetheless, it was interesting experience interacting with Gazprom.

AH_C on April 1, 2013 at 1:46 PM

http://www.zerohedge.com/news/2013-04-01/list-released-132-names-who-pulled-cyprus-deposits-ahead-confiscation-day

Wow. It’s a good thing the Cypriots are a bunch of unarmed dopes.

They’ve been sheered….

dogsoldier on April 1, 2013 at 2:48 PM

The greatest irony in Obama’s America is the collapse of other socialists countries is strengthening the US dollar.

rob verdi on April 1, 2013 at 9:25 AM

Not for long. The way the fed is (electronically) printing money, it is only a matter of time before the dollar goes splat.

SubmarineDoc on April 1, 2013 at 5:24 PM

What is the cover pic from anyway?

Free Indeed on April 1, 2013 at 10:28 AM

Goldeneye. That’s Xenia Onatopp and James Bond

thebrokenrattle on April 1, 2013 at 10:30 AM

Or, Famke Janssen and Pierce Brosnan

rwenger43 on April 1, 2013 at 8:35 PM

The greatest irony in Obama’s America is the collapse of other socialists countries is strengthening the US dollar.

rob verdi on April 1, 2013 at 9:25 AM

Not for long. The way the fed is (electronically) printing money, it is only a matter of time before the dollar goes splat.

SubmarineDoc on April 1, 2013 at 5:24 PM

I once told my boss that relying on the continued incompetence of your competition is a poor business plan. He didn’t appreciate my thoughts.

rwenger43 on April 1, 2013 at 8:39 PM