Closed Cyprus bailout

Stock markets have recovered from their earlier turmoil as Cypriot politicians and central bankers hold emergency meetings to negotiate a rescue package with the island’s creditors.

Lina Saigol, Tom Burgis and Ben Fenton, from the FT’s Live News Desk follow the event, along with FT correspondents in Europe

Good Morning. Financial markets around the world have taken fright at the proposed bailout struck with international bailout lenders on Saturday which would see a 6.75 per cent levy would be imposed on all deposits under €100,000 while accounts over that threshold would be hit with a 9.9 per cent levy.

The FT’s Mary Watkins sends this market update:

Yields on Spanish 10-year government bonds are trading up 13 basis points at 5.05 per cent, while equivalent Italian benchmark bonds are 10bp higher at 4.7 per cent as investors digest details of the €10bn bailout for Cyprus.

Haven assets in Germany and the UK are in demand with yields on 10-year Bunds down 7bp at 1.39 per cent and gilts also 7bp lower at 1.87 per cent. German two-year notes briefly dropped below 0 per cent for the first time in more than two months.

David Keohane on Alphaville provides this chart on Spanish and Italian debt creeping up while German debt has snuck down, with the 2-yr going negative for the first time since the start of January.

Vladimir Putin, the Russian president, described the proposed levy “unfair, unprofessional and dangerous”, on Monday.

The FT’s Stefan Wagstyl has been looking at what Russia can do to help.

Russian banks had $12bn deposits in Cyprus and corporates about $19bn at the end of 2012, according to Moody’s

Sharon Bowles, chair of the European parliament’s economic affairs committee:

“It robs smaller investors of the protection they were promised. If this were a bank they would be in court for mis-selling.” she said. “The lesson is that the EU’s single market rules will be flouted when the eurozone, European Central Bank and International Monetary Fund say so.”

Economist Mohamad El-Erian on a muddled and risky approach to Cyprus

Ed Conway, economics editor of Sky News, has written concisely on the problems for retail investors:

There are of course certain circumstances under which a bank’s depositor should lose out: basically when that bank collapses. Indeed, that’s precisely the kind of system we need in future to prevent bail-outs and too-big-to-fail.

However, in those circumstances 1) other senior creditors should lose out, 2) depositors whose savings are below the deposit insurance scheme limit should be protected and 3) the deposits affected should, logically, be in the bank that’s going under.

None of these three criteria were observed in the Cyprus case, where even deposits in Barclays in Nicosia are subject to the tax, in the plan’s initial form. It doesn’t take a genius to figure out that such a capricious attitude to principles savers might have reasonably considered inviolable will catastrophically undermine Cypriots’ faith in banks – not just Cypriot ones but any within their country.

Bloomberg has an update on strong moves in the currency markets:

The euro slumped the most in 14 months against the dollar after an unprecedented levy on bank deposits in Cyprus threatened to throw Europe back into crisis.

The 17-nation currency dropped to a two-week low versus the yen after Cypriot President Nicos Anastasiades bowed to demands by regional finance ministers to raise 5.8 billion euros ($7.48 billion) by taking a piece of every bank account in Cyprus.

The yen strengthened against all its 16 of its major counterparts after Anastasiades delayed a vote on the measure in parliament until today. The New Zealand dollar and Mexican peso weakened as investors sold higher-yielding currencies.

“The measure makes people nervous that this may happen to other countries in the future and there could be a flight of capital out of the region,” said Mansoor Mohi-uddin, head of currency strategy at UBS AG in Singapore.

Finbar Taggit, a hedge fund blogger, says this:

The stealing of bank deposits is a complete no no but the IMF and EU have done it anyway. The outcome will be very unpleasant. When Kings raid people of their money to fund wars, the outcome is always revolution.

Gary Jenkins of Swordfish Research has written a note with the lively title: Einstein said that God does not play dice. But it appears that the
Eurozone does…

In the medium term the decision taken regarding the loss on bank deposits could have major ramifications for the Eurozone if the European debt crisis re-escalates.

What I find most surprising is that they are prepared to take such a major gamble to save such a small amount of money. The 3 year LTRO’s? A gross figure of over €1 trillion. Bailouts thus far? Hundreds of billions. Yet all this for just €6bn.

The FT’s Moscow bureau chief Charles Clover and colleague Courtney Weaver wrote this excellent piece last month about Russian money flowing through the Cypriot economy.

In 2011, Cyprus was the number-one destination for Russian money being sent abroad and the number-one direct investor in Russia, with more than $13bn in investments, according to Russia’s Central Bank.

“From an economic perspective, Russia and Cyprus are so intertwined, Cyprus could almost be another region of the Russian Federation,” said Steven Dashevsky, founder of Dashevsky & Partners, a Moscow investment company.

Sandy Chen from Cenkos Securities:

We can’t think of anything that could be more destabilising for Eurozone banks than replacing a deposit guarantee scheme with a surprise confiscation – and upending the equity/debt/depositor hierarchy in the process. The Eurozone has in one stroke cut down the depositor confidence that banks’ 20x-leverage structures are built upon. The dynamic of customer deposit withdrawals forcing liquid asset disposals can quickly build momentum and breadth. Note that Italian/Spanish vs German spreads have gapped out 25bp this morning; the flight to safety is already underway.

Will this be a short-term blip, with the ECB/Fed/BOE riding in with yet another liquidity injection? The problem is that these injections have gone into the bond/repo markets; they wouldn’t help depositors. The Eurozone decision of Cyprus appears to have changed the game.

As a reminder, in terms of net on-balance sheet exposures, Barclays (BARC LN, £41bn mkt cap, 320p, Sell) has £23bn in Spain, £23bn in Italy, £8bn in Portugal and £0.2bn in Cyprus. RBS (RBS LN, £34bn, 308p, Sell) has £12bn in Spain, £6bn in Italy and £0.3bn in Cyprus.

This morning’s FT editorial on Cyprus is hard-hitting:

The hope of righting the eurozone’s listing ship relies on divorcing the debt problems of a sovereign from those of the country’s banks. Last June, the eurozone’s leaders finally acknowledged the nature of the problem. Cyprus seemed a possible salutary test for the more enlightened approach.

With unsustainable public finances and a banking sector about seven times the island’s annual economic output, the stark choice was between sovereign restructuring and forcing losses on bank creditors. Choosing the latter course was correct. But instead of restructuring broken banks at the unfortunately necessary price of creditor losses, this package pays the price without the benefit.

First thoughts from Credit Suisse analysts

For Cyprus itself there appear to be a number of outcomes in the near term; (i) the plan gets voted through as presented; (ii) a modified plan is approved; and (iii) there is a sovereign default. Note that there is a Cypriot parliamentary vote scheduled for c.2pm UKT today, although this could be postponed. Further note that the main party does not have a sizeable majority and so the outcome of the vote is uncertain.

With total loans of c.€72bn loans (Jan 2013, Central Bank of Cyprus) and c.€68bn of deposits in the banking system, there is currently c.€15bn of sovereign debt outstanding. Should we see more contagion to some of the other European peripheral countries we would expect the European authorities to react, potentially via existing policy mechanisms or via new facilities, and we could see the EU take additional pre-emptive steps to stabilize funding.

Marc Ostwald of Monument Securities vents:

For all that “troika” officials and other politicians are trying to claim the “bail-in” of depositors in the Cyprus rescue package was unique and does not set a precedent for others, the truth is that it does. While its draconianism is a welcome counter to the vacillation, can kicking or pig headed so-called principled refusal to find a way forward elsewhere in the developed world, it also highlights how post 2007 efforts to resuscitate and rescue western economies have continued to favour the vested interests of the financial sector, while treating the “population at large” with disdain and contempt – this sort of attitude is still a seed bed for social revolution, as has been witnessed above all in the Arab Spring. If this also unpicks what has been ostensibly been achieved by Mr Draghi’s OMT and ‘everything possible to save the Euro’ rhetoric, then our previous warnings about the risks posed by Cyprus seem more than justified.

The other point on the “bail-in” is that this was the only option given that Cypriot banks have little or nothing in the way of bonds – still the message for credit markets is a simple assume, do not assume Senior debt is safe from a bail-in.

Vincent Forest, Cyprus Analyst at The Economist Intelligence Unit talks about a serious risk of contagion to other peripheral euro zone countries:

“The decisions taken during the weekend in Cyprus are far more interesting for what they tell us about the mindset of decision makers in Europe than on the Cypriot situation. Given the small size of the Cypriot economy, there was little choice but to impose some losses for the Cypriot bail-out to be viable, the main question was who should bear them? The Cypriot bail-out is similar to its predecessors in that most of the cost is borne by the population.

“The Cypriot Parliament will be examining the bill this afternoon, and we expect it to smooth the impact on smaller depositors at the expense of bigger ones. Although it is a tax and not a default, the essential message sent to the markets and the population is that a bail-out poses some risks to the depositors. If depositors in Cyprus and across Europe fear for their deposits, there is a risk that these depositors will withdraw their money en masse, which constitutes the first step of a bank run. There is a serious risk of contagion to other peripheral euro zone countries, most likely via loss of confidence and increased volatility in financial markets.

Although not our central forecast, the risk of a bank run spreading across the euro zone has increased, which would be hardly stoppable and have extremely detrimental consequences.”

To Berlin, which finds itself cast as the villain as far as poorer Cypriot depositors are concerned. Wolfgang Schäuble, finance minister, has intimated that the decision to raid bank accounts below €100,000 was not a German ruse. Reuters quotes the minister thus:

“The levy on deposits below €100,000 was not the creation of the German government. If one reached another solution we would not have the slightest problem.”

Schäuble added, however, that it was impossible to solve Cyprus’s financial problems without reducing the size of its banking sector.

President Nicos Anastasiades

How Cyprus bank deposits relative to GDP compare other euro countries courtesy of ThomsonReuters:

Think Tank Open Europe looks at The Great Cypriot Game – How important is gas to Cyprus’ economic and geopolitical future

Emoticon FT’s Athens correspondent Kerin Hope in Nicosia says there will NOT be a vote on the bailout in the Cyrpiot parliament today. We are waiting for a confirmation of when it will be.

Britain’s Foreign Office warns Britons travelling to Cyprus over banking crisis. Seriously?

The British Foreign Office has warned tourists travelling to Cyprus to take pounds and euros as well as credit and debit cards as fears grow the banking crisis in the country will mean they cannot access money.

If the deal is defeated, state media say banks could be closed on Tuesday so as to avoid mass withdrawals.

Emoticon Cyprus parliament to debate the deposit levy at 6pm tomorrow, says the FT’s Kerin Hope

JPMorgan analysts latest:

A heightened commitment from the ECB to provide liquidity to banks, with new operations to provide term liquidity and an easing in the collateral regime, would be an obvious first step.

A one-year moratorium across the region on new wealth taxes might be one idea (although depositors would of course be free to assess the credibility of that guarantee individually). Indeed, the expiration of any such moratorium could be tied to progress in building out the fledgling banking union.

A renewed framework for bank resolution is due to be in place as the single supervisory mechanism is introduced early next year. The thorny issue of harmonisation of arrangements for bank deposit insurance has lurked on the to do list beyond that, and entwined with that is the issue of the banking union’s access to a region-wide fiscal backstop via the ESM.

An announcement that a region-wide moratorium on new wealth taxes would apply until harmonised arrangements for deposit insurance were in place might have some effect in stabilising deposits, thought it would come at the cost of removing an option for raising tax revenues (away from bank deposits)that some may have wanted to pursue.

The FT’s Peter Spiegel tweets:

If you missed it, here is Peter’s piece on the role Berlin played in sealing Cypriot depositors’ fate.

Good post on the voting arithmetic in the Cypriot parliament from David Keohane on FT’s Alphaville blog.

To Nicosia and the FT’s Kerin Hope, who reports that Cyprus’s financial plight is casting a shadow over Clean Monday, marking the start of Lent (according to the Orthodox calendar), which would normally be a cheerful spring holiday.

Instead of heading to the countryside for a family picnic, Nicosia residents are cruising the capital seeking a bank cash machine to withdraw a few hundred euros, amid fears that the European Central Bank is about to stop funding the island’s battered banking system.

Hoping to boost local depositors’ confidence, the Cyprus central bank announced that cash machines had been refilled overnight and would keep operating, even though the banks are expected to stay closed on Tuesday.

They are unlikely to re-open until parliament has voted through the controversial levy on deposits demanded by international lenders as part of a €10bn bailout package. The debate has just been postponed for a second time; it’s now supposed to happen tomorrow evening.

The FT’s Currency Correspondent Alice Ross updates:

The euro fell sharply in early trading on Monday but later recouped some of its losses against the dollar as investors digested the impact of the Cyprus bailout.

The single currency hit its weakest level since December against the dollar, dipping to $1.2880 in Asian trading, but later stabilised around $1.2950. >However, that was still more than a cent lower than its levels on Friday, when it traded above $1.31 against the dollar.

The concerns over the health of the euro could be seen more fully in traditional haven currencies, with the Swiss franc and the Japanese yen rising against the single currency.

The euro fell 1.3 per cent against the yen to Y123 and was 0.4 per cent lower against the Swiss franc at SFr1.2230.

There are reports in the Greek press that the Greek branches of troubled Cypriot banks could be absorbed by Athens-based banks including the state-owned Hellenic Postbank.

Analysts at Capital Economics make two sobering points:

Emoticon “Aside from Greece, deposit flight from euro-zone banks has been limited during the crisis so far. But now that the cat is out of the bag that deposits can be hit, there is surely a huge risk of deposits flowing from other countries’ banking sectors, putting an increasing burden on the ECB to fill the gap.”

Emoticon “The deal has not yet been ratified by the Cypriot Parliament and might still be watered down so that bigger depositors take a larger share of the loss. It could even be rejected altogether. But that scenario might be even worse given that Cyprus would presumably then have to leave the eurozone and reintroduce its own currency. The current enforcement of a two-day bank holiday has provided a blueprint for how part of that process might be managed.”

The FT’s Hugh Carnegy has been looking at the French reaction:

In France, where there has been some sharp criticism from the far-left and far-right of the terms of the Cyprus bailout, the government has defended the deal as “hyper-exceptional”, insisting it does not set a precedent for levies on bank deposits in other countries. “It was the least worst solution possible,” a top official at the Elysee Palace said.

He said Mario Draghi, the head of the ECB, needed “to explain clearly” to the public why this was so. But the official also said the Cyprus case reinforced the need for a common banking supervision regime for the eurozone.

“It illustrates why we said at the last (EU summit) that countries must not mess around procrastinating on this issue.There is no time to lose. If we had had a single banking supervision in place we would not have had this banking dysfunction in Cyprus which weakens everyone.”

Not the warmest welcome for President Anastasiades as he arrives at parliament (Photo: Reuters)

And Germany’s chancellor is hardly flavour of the month either (Photo: AFP)

The pictures and film from the protests outside the Cypriot parliament do not portray a major demo. There seem to be only a handful of people there.

Charles Wyplosz at Vox says the likelihood of these three scenarios – benign, less benign, and total disaster – are difficult to assess:

What is clear is that the Cyprus bailout has created a new situation, more perilous than ever before.

Once more a deeply dangerous policy action is decided apparently without any awareness of its unintended consequences.

It is also another violation of sound existing arrangements. We have a no-bailout clause in the Maastricht Treaty – a clause that was essential to the Eurozone’s stability. Putting it aside in the case of Greece was the heart of the today’s problem – the reason the crisis spread (Wyplosz 2010). This no-bailout clause has once again been put aside summarily.

We are now witnessing another radical change as a perfectly reasonable deposit guarantee is being undermined. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors.

The FT’s Michael Stothard and Mary Watkins on the markets desk say European banks will need to shed as much as another €3.4tn from their balance sheets over the coming years.

What is the political arithmetic here? Back to Nicosia and the FT’s Kerin Hope for some more permutations on how the parliamentary vote might pan out (see 11.37).

The right-of-centre Democratic Rally (Disy) and the nationalist Democratic party (Diko) are coalition partners in President Nicos Anastasiades’ government but they control 28 seats in the 56-member house, not the 29 that would represent a majority.

A Diko lawmaker, Zacharias Koulias, split from his party more than a year ago and is now sitting as an independent. He has already declared he won’t back a levy on bank deposits.

At the time, the ever-flexible Diko party was in coalition with the governing communists. Koulias claimed then-president Demetris Christofias was making too many concessions to Turkish Cypriots in the UN-sponsored talks on re-unifying the island.

With parliament evenly divided, Anastasiades has to find that extra vote fast. One lawmaker from Euroko,, a small pro-EU party, seems willing to sign up, but in the meantime four Diko deputies have threatened to break ranks and bring down the government with potentially disastrous results.

The FT’s Currency Correspondent Alice Ross updates:

The euro fell to its weakest level in three months against the US dollar as investors reacted to news that a proposed eurozone bailout of Cyprus would involve a tax on bank savers.

The single currency dipped to $1.2880 in Asian trading but later stabilised to trade around $1.2950 as reports emerged that politicians in Cyprus were considering amending the deal to relieve the pressure on small depositors.

The euro remained below its levels on Friday, when it traded above $1.31 against the dollar. Haven currencies also rose against the euro, with the Japanese yen and the Swiss franc making gains amid the market uncertainty.

The euro lost more than 1 per cent against the yen to hit Y121.55 and was 0.4 per cent lower against the Swiss franc at SFr1.2230. The yen was also stronger against the US dollar, which fell 0.2 per cent to Y95.14.

Jane Foley, analyst at Rabobank, said: “It is likely that the euro will remain jittery near-term. On top of the news from Cyprus, markets are still confronted with Italian political uncertainties and the risk that political deadlock there could persist for weeks, if not months.”

The pound also made strong gains against the euro on Monday, rising 1 per cent to €1.1720, its highest level in more than a month, sparking predictions that sterling could regain some of its haven status despite ongoing concerns about the health of the UK economy.

“In the past, the pound acted as a safe-haven currency, and although we have questioned this role recently, in the case of a potential deposit flight we would expect the pound to regain its safe-haven attractiveness, in the near term at least,” said analysts at Morgan Stanley.

The pound was flat against the dollar at $1.5111, while the dollar index gained 0.5 per cent amid the market caution.

The ripples from the Cypriot bailout have made it to Manhattan. US index futures suggest Wall Street’s S&P 500 will retreat 14 points from its near five-year highs when the starting bell rings later in the session. The futures at one time had been showing a 25-point retreat. More in the FT’s Global Market Overview.

Gold advanced $9.80, or 0.62%, to $1,602 a troy ounce

Jefferies’ analyst David Zervos:

“This is a nuclear war on savings and wealth,”

US stocks are falling sharply at the opening bell…

Morgan Stanley looks at the Cyprus debt trajectory:

It’s a dismal start to trading in the US markets as the fallout over Cyprus saps investor optimism, reports Michael Stothard on the FT’s markets desk.

The benchmark S&P 500 index is down 1 per cent while the Nasdaq is 1.2 per cent lower and the Dow is down 0.7 per cent in early trading. Brokers say that some investors have been using the news as an excuse to take profits after the recent rally, which has seen the S&P 500 index rise as much as 10 per cent this year. The question on everyone’s lips is weather this is the start of a correction or a one-day blip.

Paul Krugman coins a new acronym for the element that distinguishes Cyprus from the other island rescues in Iceland and Ireland: the involvement of RMML (Russian mobster money laundering). In a commentary on the Cypriot bailout just published in the New York Times, the economist goes on (via a swipe at a “clueless” remark by George Osborne):

Cyprus, unfortunately, seems to be making a hash of it. To be fair, the proposed levy on depositors is actually smaller than the real losses Icelandic depositors took (and they lost on their currency holdings too). But this is just the beginning! Even with the effective default on deposits, Cyprus will need a huge loan from the troika, and the condition for this loan will be harsh austerity. This looks like the beginning of endless, inconceivable pain.

To Brussels and the FT’s Peter Spiegel, who reports that, at the scene of the weekend deal on Cyprus in Brussels, officials today were keeping tabs on the talks within the Cypriot government.

Other than that, they were largely holding their breath to see if the tweaks in the bank levy rates to shift more of the burden to depositors with more than €100,000 in their accounts was enough to get a majority to back the plan. Officials have tentatively set a conference call of the so-called eurogroup, the 17 eurozone finance ministers who must approve any changes to the deal, for this evening, but officials warned that could change if the Cypriot government doesn’t reach a compromise in Nicosia before then.

Jean-Claude Juncker, the prime minister of Luxembourg and erstwhile head of the 17-nation eurogroup, sees dark clouds gathering over Cyprus. He is quoted by AFP as telling reporters:

“I have grave concerns that this will lead to a loss of confidence, not just from the banks but also from the people.”

There was, he noted (albeit in jest), one over-riding flaw in the rescue deal:

“This is the first [deal] that was made without my help. In that sense, it is deficient.”

Der Spiegel has wrapped up German press opinion on Cyprus

The FT’s Kerin Hope in Cyprus sends an update:

Cypriots were hunting for cash on Monday, a public holiday, following an official announcement that banks would stay closed on Tuesday.

Bank cash machines in Nicosia’s suburbs were quickly emptied but bigger branches in the centre of the capital were better supplied.

“My mother had to drive to a central branch of Laiki (bank) to find money…so I went out too,” said Eleni, a financial services worker.

“We’ll go again tomorrow, you have to collect cash in order to feel safe.”

Aristo, a university student from Greece sipping a freddo at a cafe in Nicosia’s old town, said he was worried about running out of funds.

“I’m not sure whether my parents will be able to make a transfer to Cyprus this week, so I’ll be really strapped for cash.”

His friend Maria, an economics student, warned that restaurants in the old town have stopped accepting credit cards.”It seems it doesn’t take much to send us back to being a cash-based economy,” she said. “It’s getting a bit scary.”

It is not only Cypriots who are affected by the island’s deepening crisis.

Dolores, a Filippino household helper, was contacting her family on Skype at an internet cafe. “I had to tell them I may not send any money this month, because of what’s happening,” she said. “I’ve been in Cyprus for 12 years and I’ve never seen my employers looking so worried.”

Dmitry Medvedev, prime minister of Russia, via the BBC says:

“This simply looks like confiscating money that doesn’t belong to you,” Mr Medvedev said on Monday.

“This practice was unfortunately quite well known and familiar from the Soviet period, when money was exchanged at certain ratios or not returned,” Mr Medvedev said.

“But here we are talking about a country that’s supposed to be a market economy and an EU member.”

He added that Russia would have to “make some adjustments to [its] position” in Cyprus, without elaborating.

The Russian government gave Cyprus a 2.5bn euro loan in 2011.

AP reporting that the Cyprus central bank has stated the country’s banks will remain closed until Thursday

Here is the Central Bank of Cyprus’ balance sheet showing how many banknotes are in circulation in the country.

Back to Brussels and the FT’s Peter Spiegel.

EU officials said that Joroen Dijsselbloem, the Dutch finance minster who chairs the eurogroup of finance ministers, has scheduled a conference call for the group at 7:30pm [local times] this evening, but one senior official cautioned that the timing could still move if Cypriot officials cannot finalise a deal in Nicosia. The official said the corresponding call of the “euro working group” — the finance ministry deputies who prepare issues for their bosses — “keeps being postponed”.

Emoticon Aliki Stylianou, a spokeswoman for Cyprus’ central bank, says Monday’s bank holiday has been extended by two days.

FT Alphaville’s Izabella Kaminska notes the following from Credit Suisse:

ECB data shows cross-border deposit liabilities for Cypriot banks with the rest of the World (i.e. non EU) at €32bn of which €12.8bn is banks and €19.2bn is non-banks. The latter is further classified into €11.8bn for corporates, €5.0bn for households and the remainder comprised of other financial intermediaries.

We believe the bulk of the €32bn (188% of Cypriot 2013E GDP) of non-EU resident deposits to originate from Russia. Nonetheless, this data does not necessarily place a ceiling on Russian deposits as those made locally would not be classified as cross-border liabilities. Ultimately, Eurozone policy makers may be attempting to force a last-minute Russian contribution towards a Cypriot bailout, sufficient in magnitude to reduce or even remove the need for the deposit levy.

Design your own Cyprus bailout courtesy of Reuters

Citi’s chief economist Willem Buiter says contagion is overrated:

Contagion risks are overrated, in our view. The risk of bank runs in other euro area countries has clearly risen, but the unique features of the Cypriot situation should limit the ‘read through’ to other cases in the euro area.

Even when bank runs occur, the ECB has the means to substitute for the funding lost from departed deposits.

One of the known unknowns in all this is the outlook for Cypriot gas, which is being touted as both an economic boon on the horizon and a sweetener for irate Cypriot depositors. Those who keep their deposits in the country for two years will get securities tied to future revenues from Cyprus’s gas finds. All very well. Except, of course, that that revenue might never flow. Here is what Noel Tomnay, head of global gas research for oil and gas consultancy Wood Mackenzie, told Bloomberg:

“Potential gas exports from Cyprus will compete in an international market of multiple other gas suppliers. This comes with risk and uncertainty. At this time, there are no guarantees that exports will be commercially achieved.”

Britain’s Financial Secretary to the Treasury Greg Clark Government has suspended payments to UK pensioners in Cyprus with Cypriot bank accounts until “at least tomorrow”. There are an estimated 60,000 Britons in Cyprus.


This is a worrying situation not just for the people of Cyprus, but for many of our constituents in the House.

FTSE 100: down 31 points at 6457, – 0.5 per cent

Markeplace writes about the 5 things you need to know about Cyprus’ economy

To Washington, where the Obama administration has made its first, albeit muted, noises on the Cypriot bailout. Reuters reports:

“We’re obviously monitoring the situation right now,” White House spokesman Jay Carney told reporters at a briefing. “We believe it’s very important for Europe to take steps necessary, as they have been, to both grow and deal with sovereign debt issues.” Carney declined to comment further on the situation in Cyprus.

The FT’s Lex team write about how, for EU banks, the bailout creates two near-term problems.

Great news for banks. A hitherto untouchable pot of money has suddenly become loss absorbing capital. Cyprus’s depositor bail-in (levy, tax, whatever) sets the principle that savings can be used to cover losses. Royal Bank of Scotland, to take a random example, has £430bn of deposits. If £29bn (or 6.75 per cent) of that could be “bailed in”, the bank’s total regulatory capital base would rise by a whopping 45 per cent.

The FT’s Michael Stothard says markets were rattled today by Cyprus, but it was not the blood bath many had been fearing.

The benchmark Eurofirst 300 stock index was down 0.2 per cent, recovering from a sharper fall earlier in the day, while in the US the S&P 500 index also pared early losses trading around 0.3 per cent lower. In the sovereign debt markets, Greek 10-year bonds suffered from the uncertainty with yields rising 43 basis points to 10.9 per cent. but the rest of the debt markets saw just minor moves reflecting a slight risk aversion. The Euro spot price was down 0.8 per cent. Gold was up 0.9 per cent to $1606.

It was a very tough day for holders of Cypriot government debt. The yield on Cyprus 2020 bonds rose 140bp to 9.8 per cent. The yields on the bond due to mature in just a few months in June 2013 rose by a whopping 2,200 basis points, to nearly 50 per cent, although this was mainly down to short term fluctuations that come with bonds about the mature. The value of the bond fell a more reasonably 400bp.

Investors are now waiting to see if the bailout terms will be approved by the Cypriot parliament and what happens when the country’s banks reopen after a national holiday.

That’s it for our live coverage today. See for updates through the evening. In short:

Emoticon The Cypriot government is scrambling to hammer out a bailout deal it can get through parliament tomorrow evening

Emoticon If it needs longer, the banks will stay closed longer

Emoticon The government may yet have to retreat on parts of its deposit levy — particularly for the least well-off. One wonders how that will go down Russia, whose citizens have tens of billions of euros stashed in Cypriot banks

Emoticon Dmitry Medvedev, prime minister of Russia, said the deposit levy “simply looks like confiscating money that doesn’t belong to you”.

Emoticon What initially looked like it was going to be a dreadful day in the markets gave way to milder sessions, with moderate losses in equities in Europe and the US

Emoticon Dire warnings of bank runs in Spain and Italy did not materialise

Emoticon Eurozone finance minister will hold a conference call tonight — but are highly unlikely to have a final deal from Nicosia to discuss

Many thanks for reading — and for the many fascinating comments.