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| Cyprus bailout deal: at a glance | Cyprus bailout deal: at a glance |
| (about 1 hour later) | |
| Cyprus struck a last-minute bailout deal in the early hours of Monday morning, aimed at preventing the island becoming the first country forced out of the single European currency. | |
| • Crucially, the new programme spares deposits below €100,000 (£85,500), unlike last week's proposals, which sparked outrage with a 6.75% tax on all bank depositors. | |
| • Cyprus's second-largest bank, Laiki Bank will be closed. Its €4.2bn in deposits over €100,000 will be placed in a "bad bank", meaning they could be wiped out entirely. Those with smaller deposits at Laiki will see their accounts transferred to the Bank of Cyprus. | • Cyprus's second-largest bank, Laiki Bank will be closed. Its €4.2bn in deposits over €100,000 will be placed in a "bad bank", meaning they could be wiped out entirely. Those with smaller deposits at Laiki will see their accounts transferred to the Bank of Cyprus. |
| All lenders to Laiki will see their investments wiped out, in a first for a eurozone bailout. In other bailouts, holders of higher rated bonds have not faced such losses. | All lenders to Laiki will see their investments wiped out, in a first for a eurozone bailout. In other bailouts, holders of higher rated bonds have not faced such losses. |
| • Bank of Cyprus survives the axe, but faces huge restructuring. No bailout money will be used to the recapitalise the bank. Instead its shareholders and bondholders will be hit. It is thought depositors with over €100,000 at the bank will also be involved in the recapitalisation and could face losses of up to 40%. | |
| Getting the bank up to healthy EU-mandated capital levels will be made harder by the fact that Bank of Cyprus will inherit a €9bn debt Laiki had with the European Central Bank. | Getting the bank up to healthy EU-mandated capital levels will be made harder by the fact that Bank of Cyprus will inherit a €9bn debt Laiki had with the European Central Bank. |
| How does the deal differ from the one on the table last week? | How does the deal differ from the one on the table last week? |
| The key difference is that small depositors have been protected and the EU's €100,000 legal guarantee has been upheld. Also, the plan does not have to be approved by the Cypriot parliament. | |
| Why not? | Why not? |
| The deal has been structured so losses on large depositors will be achieved by restructuring Cyprus's two largest banks and not by levying a tax on its citizens. | The deal has been structured so losses on large depositors will be achieved by restructuring Cyprus's two largest banks and not by levying a tax on its citizens. |
| Who are the biggest losers? | Who are the biggest losers? |
| Russian nationals are estimated to hold more than €20bn of the €68bn deposited in Cypriot banks and many are thought to have deposits of over €100,000. | |
| Laiki Bank was 84% owned by the Cypriot government, following a €1.8bn bailout in June last year. The rest is owned by around private and institutional investors, including bank staff. | Laiki Bank was 84% owned by the Cypriot government, following a €1.8bn bailout in June last year. The rest is owned by around private and institutional investors, including bank staff. |
| Laiki bondholders will be wiped out and lenders to the Bank of Cyprus will also face heavy losses in the recapitalisation. | Laiki bondholders will be wiped out and lenders to the Bank of Cyprus will also face heavy losses in the recapitalisation. |
| Thousands of staff at both Laiki and the Bank of Cyprus will lose their jobs. | Thousands of staff at both Laiki and the Bank of Cyprus will lose their jobs. |
| Will this be the end of Cyprus's problems? | Will this be the end of Cyprus's problems? |
| No. In fact, analysts say it is only the beginning. Cyprus has benefited for years from attracting the deposits of wealthy individuals from around the eurozone. That business model is now broken and the country has nothing to replace it with. Tellingly, the EU gave no economic projections for Cyprus in its statement. | No. In fact, analysts say it is only the beginning. Cyprus has benefited for years from attracting the deposits of wealthy individuals from around the eurozone. That business model is now broken and the country has nothing to replace it with. Tellingly, the EU gave no economic projections for Cyprus in its statement. |
| Gary Jenkins of Swordfish Research said: "The economy is crushed for the next god knows how many years. As soon as people can take their money out the banks, they will take it out. Confidence has disappeared. Who's going to want to do business with Cypriot corporates right now?" | Gary Jenkins of Swordfish Research said: "The economy is crushed for the next god knows how many years. As soon as people can take their money out the banks, they will take it out. Confidence has disappeared. Who's going to want to do business with Cypriot corporates right now?" |
| Will this be the model for future bailouts? | Will this be the model for future bailouts? |
| It is impossible to say. So far, no two eurozone bailouts have been the same. Policymakers appear to react to events, rather than follow a fixed plan. The danger is that no one is paying attention to the unintended consequences. | It is impossible to say. So far, no two eurozone bailouts have been the same. Policymakers appear to react to events, rather than follow a fixed plan. The danger is that no one is paying attention to the unintended consequences. |
| What could the unintended consequences of this particular plan be? | |
| With their initial plan to tax all depositors, policymakers made it clear that they would, in certain circumstances, be prepared to take that money. Even though they did not go through with it, this will likely shake confidence in the banks if the financial crisis re-escalates in other countries, such as Spain or Italy. Meanwhile, larger depositors and foreign companies with money in Spain and Italy are likely to start shifting that elsewhere, further damaging already weak financial institutions. | With their initial plan to tax all depositors, policymakers made it clear that they would, in certain circumstances, be prepared to take that money. Even though they did not go through with it, this will likely shake confidence in the banks if the financial crisis re-escalates in other countries, such as Spain or Italy. Meanwhile, larger depositors and foreign companies with money in Spain and Italy are likely to start shifting that elsewhere, further damaging already weak financial institutions. |