CYPRUS clinched a last-ditch deal with international lenders on Monday for a 10 billion euro ($13 billion) bailout that will shut down its second largest bank and inflict heavy losses on uninsured depositors.
Following is the detail of the deal in a statement from euro zone finance ministers.
- Laiki will be resolved immediately – with full contribution of equity shareholders, bond holders and uninsured depositors – based on a decision by the Central Bank of Cyprus, using the newly adopted Bank Resolution Framework.
- Laiki will be split into a good bank and a bad bank. The bad bank will be run down over time.
- The good bank will be folded into Bank of Cyprus (BoC), using the Bank Resolution Framework, after having heard the Boards of Directors of BoC and Laiki. It will take 9 billion Euros of ELA with it. Only uninsured deposits in BoC will remain frozen until recapitalization has been effected, and may subsequently be subject to appropriate conditions.
- The Governing Council of the ECB will provide liquidity to the BoC in line with applicable rules.
- BoC will be recapitalized through a deposit/equity conversion of uninsured deposits with full contribution of equity shareholders and bond holders.
- The conversion will be such that a capital ratio of 9% is secured by the end of the program.
- All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation.
- The program money (up to 10 billion Euros) will not be used to recapitalize Laiki and Bank of Cyprus.
(Reuters)
After the eurozone’s finance ministers’ approval, several national parliaments, such as Germany’s, must also approve the bailout deal, which might take another few weeks. EU officials said they expect the whole programme to be approved by mid-April.
Comments
“The debt clean-out will help growth as it always has. But cold comfort for the people sacrificed by a toxic blend of European idealism and grotesque local incompetence.”
“We’ve put an end to the uncertainty that has affected Cyprus and the euro area over the past week,” said Jeroen Dijsselbloem, who chairs the meetings of the 17-nation eurozone’s finance ministers.
“We believe that this will form a lasting, durable and fully financed solution,” said Christine Lagarde, chief of the IMF.
Cyprus’ finance minister Michalis Sarris said: “It’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone. A long period of uncertainty and insecurity surrounding the Cyprus economy has ended.”
Pissarides Sees ‘Disastrous’ Implications in Cyprus
March 25 (Bloomberg) – Nobel Laureate, Christopher Pissarides, the head of Cyprus’ economic policy council, talks about the island nation’s bailout package and the outlook for its future membership of the euro zone. He speaks from Nicosia with Guy Johnson and Francine Lacqua on Bloomberg Television’s “The Pulse” (Source: Bloomberg)
Press conference given by the Cyprus Finance Minister
Finance minister Michalis Sarris held a televised press briefing following the bailout deal reached in Brussels. The first 12 minutes of the briefing (below) are in English, the remainder in Greek.
@ Janner – You’re right about the web site, but the topic is the bailout deal, not property issues. However, if the bailout fails because the banks can’t take the consequences, Cyprus will have to exit the EU and introduce a local currency with a devaluation, versus the Euro, of 40-70%. Now that would be a property topic, in fact every asset in Cyrus would be affected.
@Steve. It may concern you to see posts focusing on the old issue regarding property. I understand there are wider implications but the name of this website is Cyprus PROPERTY News! They maybe old problems but are very real to many and very current. I’m sure it’s the reason why most people visit this site.
It disturbs me to see so many posts concentrating on how this affects the old problems with property ownership in Cyprus. It is much wider than that. In my view, Cyprus has been punished for being small enough to bully in a way that Greece and Spain were not.
The EU was afraid of losing those countries from the EU so no one asked Greek and Spanish bank depositors to pay anything. We must not forget that EU ministers are playing roulette with other peoples’ money so we see the bluff and bravado coming out.
Jeroen Dijsselbloem, who chairs the committee of EU finance ministers thinks they have put an end to financial uncertainty. Well, Meneer Dijsselboem’s lack of “financiele ervaring” (financial experience) bothers me. The corner of Pandora’s box has been lifted but we can’t yet see all the nasty things inside. Huge amounts of money could be moved out of struggling South European banks, with enormous unforeseen consequences. If everything is fixed, as he appears to be saying, why has the UK halted payments of UK pensions to Cyprus banks? We have just seen the first few minutes of a horror movie and some people think they know the ending already.
I don’t want to see any more; I will be heading for the exits marked US$ and GB£.
@Maxwell Raymond Hannah
From what I hear on this forum. The Cypriot authorities would stand to make somewhere in the region of €1.3 billion if deeds were issued and transfer taxes paid. To me, that is not an insignificant sum especially in relation to the relatively small figures for the bailout. I can only presume it is not mentioned because of the complexities of the loans and the fall-out if it were to be made public. Because, we all know the loans were given in a culture of corruption which goes all the way to the top.
Is the new president really going to go after the political and social elite. I have my doubts. A good indicator as to how serious he is would be if he publicly acknowledged the title deed fiasco and the cover-up all the way to top. Like I said, I have my doubts.
SO it is over Now, But WHY! did no one mention the Title Deeds, which could have brought in quite a Substantial Amount of Money,for the Cyprus Government, where is the EU when you need them.
Maxwell
NICOSIA (Reuters) – Andreas Artemis, the chairman of Cyprus’s biggest commercial bank, the Bank of Cyprus, has submitted his resignation, a source at the bank said on Tuesday.
“He sent a resignation letter this morning which will be examined by the Board of Directors convening this afternoon,” the bank source said, requesting anonymity.
@Anna – I think it would be wise to keep the mortgage going until the dust has settled and everyone knows what is happening.
Re: Janner and Nigel’s posts below: I’ve only got a tiny mortgage left now, which I wanted to pay off in the next couple of months. Would this be wise, or should I keep the mortgage going?
As a couple who would loved to have retired to Cyprus (glad we didn’t now!! ). I cannot understand how the grabbing by the State of up to 30% of someone’s private account can be legal. It is theft pure and simple. EU bullying. Not only will this undermine the Cyprus banks and economy, it will undermine all the countries in the Euro zone. Except Germany…. surprise, surprise.
The banks are to blame for ALL the known reasons. Cannot understand why the Cypriots and others affected by this have not demonstrated more aggressively. Imagine if it had been France ?? No doubt there will be a massive run on the banks on Thursday, with everyone hiding away wads of Euros.
Good Luck to everyone involved.
I note that Mr Pissarides said that the financial services was growing successfully for 30 years administered by “highly educated people”, so why did they not have due diligence to all the unchecked loans and Greek bonds, they seemed to be operating a big “ponzi scheme” financed by Russian money. All that it took was the last President and his cronies to dip into the pot and start manipulating things and the “highly educated” people jumped onto the gravy train and did not bother about non performing loans and double mortgages etc.
It is the small savers that are paying and the “fat cats” and the developers with large unsecured loans appear to be getting away with it. Maybe the government should get some of the ex liaki unemployed to go around and check which land has been developed and the loan not repaid!
I’ll try and get to see Bill Cash asap and ask him to raise the questions about the NPLs and property owned by British citizens with the APPG.
Dear Nik,
Now give us our title deeds that previous Governments, Bankers, Developers and Lawyers conspired to deprive us of and you may have some spare cash as a result.
Thank you my friend.
During the last few days the situation of the economy and the banking system worsened dramatically. This resulted in the convening of the extraordinary meeting of the Eurogroup in Brussels, with the ultimate goal being the achievement of a loan agreement and the approval of a rescue programme. Otherwise, we would have been led to the collapse and the bankruptcy of the state.
Our going to Brussels for an extremely difficult mission had only one aim: To succeed in saving our homeland through the stabilization and the rectification of our banking system.
The hours were difficult, at some moment they were dramatic. Cyprus was a breath away from economic collapse. Our choices were not easy, and the environment not the most ideal. However, through tough negotiations, with persistence but also with a sense of responsibility we reached a result that safeguards the prospects of our country.
The agreement we reached is painful but the best we could secure under the circumstances. The danger for the bankruptcy of Cyprus is definitely left behind and the tragic consequences for the economy and the society are averted. The banking system will be stabilized. We succeeded in avoiding the bankruptcy of the Popular Bank and whatever that would mean. We secured the complete capitalization of the Bank of Cyprus. Through the merger of the Bank of Cyprus with the healthy section of the Popular Bank a strong bank is created able to serve the needs of the depositors and the national economy.
I don’t even want to think what our day would be tomorrow without an agreement. During these critical hours I shared your agony about the course of the negotiations. My thoughts were constantly with you and I drew strength from the will of our people to overcome this obstacle too.
My friends,
Together, the people and the political leadership engaged in a big battle from which we came out wounded, but standing up and determined to make a new beginning. We leave behind us the uncertainty and the agony that we all lived through during the last months and we look to the future with optimism.
As of tomorrow a new period begins for Cyprus. In the following days difficult decisions will start to be implemented. Given the situation we found ourselves in there are no easy solutions. I was obliged to take difficult, painful but also bold decisions in order to secure a manageable tomorrow.
The Central Bank of Cyprus, on the basis of legislation adopted by the Parliament, will implement as of tomorrow certain restrictive measures with regard to financial transactions. It concerns a very temporary measure, which will gradually be relaxed. As a government, I want to assure you that we will do whatever possible so that we can return soon to full normalcy. That is why I call on everyone to work together calmly, patiently and resolutely in order to succeed the earliest possible the restarting of our economy.
The European Central Bank from now on safeguards the liquidity of the banking system. Through the loan agreement we succeed in drawing ten billion euro, a fact that proves that we restore our credibility, but which also constitutes actual proof that our creditors have confidence in the resourcefulness of our people and the prospects of our economy.
My friends,
During these difficult hours, all of us, state and society, we ought to stand by our compatriots who will be in need. We have an obligation to stand on our feet and to get out of the vicious cycle of recession. The government is committed to do everything so that through specific measures it will stand by the side of those who will shoulder the painful consequences. As a first measure, all pension funds of the affected banks will be safeguarded.
With the termination of the uncertainty we focus our attention on policies that will help in attracting investments and on development projects that will create new employment positions.
Compatriots,
In all these days there were voices heard calling for the exit of Cyprus from the euro. Despite the bitterness and disappointment that we all felt from the stance that some of our partners held towards Cyprus, I don’t think that the disengagement from the European family would address the crisis.
My friends,
Understanding the justifiable sense of rage occupying you because of the responsibilities of those who led us to the current situation, I commit myself that in the next days the Council of Ministers will appoint criminal investigators with clear and expanded terms of reference in order to seek for and attribute responsibilities where they belong.
We have fought the battle for the sake of today, as well as of tomorrow, for the sake of our children and our grandchildren. As from today we start together the effort of reconstruction. Our country has gone through worse situations. The people of Cyprus, with the obstinacy, the love for their country, the industriousness and the sense of responsibility that characterize them will reverse the negative state of affairs and will take again the road to creation. Let’s convert the crisis into an opportunity making a new start so as to build the future on more solid and healthy foundations.
It would be a gross oversight of me not to thank warmly my colleagues, both those who accompanied me to Brussels and those who worked incessantly in Cyprus in order to be able to reach the agreement for the rescue of Cyprus economy. I cannot but thank warmly the political leaders with whom I was in continuous consultation at all the stages of the talks.
Oh dear… Sorry, am away at the moment, so can’t write much, but am here in spirit (geddit?) Anyway, please read this: The broken Euro.
On another note (plus, if further proof were needed), please see the absolutely heart-breaking, if I had one, of course, submission to the EU parliament of the previous article and the general EU reaction), no clear instruction re: resolution of property disputes with NPLs, double mortgages, title deeds etc is given because THE EU DOES NOT CARE.
If anyone can show me ANYTHING they’ve done to prove otherwise, I’ll give you 100 Euro. If I can get any money out the ATM. Gotta go now but more to follow when I’m back. Woooo (ok ok, that’s getting old now…)
Does anyone think it ends here? Cyprus will be back for more money in at most a year’s time.
1) I suspect from the size of the banks assets compared to total GDP, they were contributing a fair percentage of it. This ‘industry’ has now been effectively closed down in Cyprus, GDP will shrink, the loan to GDP ratio becomes higher and thus increasingly difficult to service.
2) If the Russians start to pull out (and I suspect they will) this will detrimentally affect an already struggling construction and real estate sector. Were this to send one of the major developers under, another bank rescue would be needed.
This is of course only in my humble opinion.
@Andrew – a BBC team is set to arrive in Cyprus in the next few days. I hope to have the opportunity of speaking with them.
If they don’t know about the problem when they get here – they’ll certainly know about it when they leave.
Not one single UK News channel has yet commented on the fate of those people encumbered by Developer mortgage. All the emphasis is on Russian money. It is diabolical to think that Thousands of people could lose their homes because of the systemic corruption in the Cyprus system. The European parliament appear to be brushing the matter under the carpet while they try desperately to keep the rotten Euro afloat.
Cyprus you have ruined the lives of your own people and you have ruined the lives of many honest people who invested in your Country. “This is Cyprus”
@Janner – I think speculating what may or what may not happen does not get anyone anywhere. We must be patient and wait until we know what is going to happen.
(I did get a call this morning from someone who advised me that that a particular bank was refusing to allow the transfer of a property even though their contract of sale was lodged at the Land Registry before the the developer’s mortgage was lodged. If true, this is extremely worrying.)
I’m concerned that the bank will assess the value of the property against the outstanding mortgage (if any) and base their decision on that. So, if someone has no mortgage then the bank will happily take it back and sell it on as any price they get for it is money they never had. If there is a mortgage of say €50k and they think they can turn a profit on it then they will take it and sell it.
If this turns out to be the case then those who do pay their mortgage will keep paying and eventually reach a point where the bank feel they can turn a profit on it and they will seize it. This seem ridiculous as I’m typing it but I seem to remember Alpha Bank (I think) doing this a while ago and they only seized (or tried to) properties that did not have a mortgage.
Is this true Nigel or have I just imagined this in one of my nightmares!
@Janner & @MarkD – we don’t know as yet how situations where people have paid for or have mortgages to buy property that is built on land that the developer has mortgaged – and his loan is non-performing will be dealt with.
I would hope that buyers with mortgages will be secure, but we will have to wait and see what transpires.
Incidentally these and other property-related questions have been raised with the appropriate authorities.
I do wish someone very senior would clearly mention the ticking time bomb of NPL’s and that this problem is well and truly home grown.
I wonder what will happen to all the NP developer loans held by Laiki Bank. Will the bank take back the land including my property which sits on it.
They can do it. But I don’t know whether they will….time will tell I guess.
@nigel, absolutely!!!!!
Can anyone tell me if the last 10 days will help in anyway to resolving the problems that many people are having regarding their properties. I think many were hoping that all would be exposed by the EU but very little seems to have been said. What will happen to all the properties mortgaged with Laiki?
@Pippa – the situation has deteriorated over the past week.
The question people should be asking is why Catastrofias and his AKELites refused/delayed to act when the original MoA was put on the table last year. Had he acted responsibly and with some urgency, we wouldn’t be in the mess we are in now. There would have been a scrutinisation of the banks, but the situation now would be far, far less painful if he’d accepted the offer.
It would seem that the goalposts moved during ‘negotiations’ and the result is a deal worse than the one offered last week.
What this means for many of us will come out over the next few weeks when the detail is known. I don’t think we’ve seen the last surprise!
Maybe the spirit of odd job bob can shed some light on the situation.
Hello Bob, are you out there?……….show me a sign…….(spooky eh)……
Please can some one explain why this is a better deal than the one that was rejected a week ago. I appreciate that depositors with under €100,000 will no longer lose money directly, but is not the effect of this new deal more devastating to the economy as a whole?