President Nicos Anastasiades has urged eurozone leaders to revise the terms of Cyprus’ bank bailout, in a highly critical letter.
Nicos Anastasiades said the “haircut” imposed on large deposits under the 10 billion-euro bailout had significantly eroded the capital kept by businesses in banks.
Losses were imposed on big deposits in Bank of Cyprus (BoC) and Laiki Bank. BoC is now in trouble, the letter said.
The letter to Cyprus’s creditors, sent last week, was leaked on Wednesday.
“I urge you to support a long-term solution to Bank of Cyprus’ thin liquidity position,” Nicos Anastasiades said.
Laiki Bank is being wound up and its safe assets transferred to BoC.
For large depositors at both banks the first 100,000 euros is protected, but the government can tap up to 40% of their remaining deposits, to contribute billions towards the bailout.
President Nicos Anastasiades has urged eurozone leaders to revise the terms of Cyprus’ bank bailout, in a highly critical letter
But Nicos Anastasiades complained that “no distinction was made between long-term deposits earning high returns and money flowing through current accounts, such as firms’ working capital”.
“This amounted to a significant loss of working capital for businesses.”
The rescue was agreed in March with the troika of international lenders – the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF).
Capital restrictions imposed to prevent a run on Cypriot banks have been eased, but remain in place. The president said such “artificial” measures “will only aggravate the depositors the longer they persist”.
“Rather than creating confidence in the banking system they are eroding it by the day,” Nicos Anastasiades warned.
The text of his letter appeared on the Open Europe think tank’s blog on Wednesday. His complaints about the bailout were also reported by the Financial Times.
Unnamed eurozone officials quoted by Reuters news agency say there are no plans to alter the terms of the bailout for Cyprus or to supply more funds.
Eurozone finance ministers will discuss the letter at a meeting in Luxembourg on Thursday, Reuters reports.
Cyprus has started receiving installments of the bailout package from international creditors.
Cypriot President Nicos Anastasiades says he is battling against eurozone demands that all bank customers pay a one-off levy in return for a bailout.
Nicos Anastasiades said he shared people’s unhappiness with the terms, whereby all bank customers would pay a levy of 6.75% or 10% on their bank deposits.
The EU and IMF have demanded the levy in return for a 10 billion-euro ($13 billion) bank bailout.
An emergency session of parliament has been postponed until Monday.
Nicos Anastasiades said it was the worst crisis since Turkey invaded in 1974.
“I fully share the unhappiness caused by a difficult and painful decision,” he said.
“That’s why I continue to fight with the eurogroup to amend their decisions in the coming hours to limit the impact on small depositors.”
The president said Cyprus had had to choose between stabilizing its finances or the eventual collapse of its financial system and exit from the eurozone.
Under the bailout’s terms, people in Cyprus with less than 100,000 euros in their accounts would have to pay a one-time tax of 6.75%. Those with sums over that threshold would pay 9.9% in tax.
Depositors will be compensated with the equivalent amount in shares in their banks, and Nicos Anastasiades promised that those who kept deposits in Cypriot banks for the next two years would be given bonds linked to revenues from natural gas.
Cyprus announced the discovery of a field containing between 5 and 8 trillion cubic feet of natural gas under the Mediterranean Sea in 2011 but Turkey disputes its drilling rights.
It is believed that eurozone leaders, particularly in Germany, insisted on the levy because of the large amount of Russian capital kept in Cypriot banks, amid fears of money-laundering.
The speaker of the European Parliament, Germany’s Martin Schulz, has called for the levy to be revised to protect small-scale bank customers.
It is now clear that negotiators of the bailout in Brussels drastically underestimated the reaction in Cyprus.
Cypriot President Nicos Anastasiades says he is battling against eurozone demands that all bank customers pay a one-off levy in return for a bailout
A tiny eurozone economy feels it is being blackmailed by the most powerful, and the growing resentment will do nothing to foster European solidarity.The solution we concluded is not what we wanted but is the least painful under the circumstances,” President Nicos Anastasiades said on TV.
“I bear the political cost for this, in order to limit as much as possible the consequences for the economy and for our fellow Cypriots.”
The vote in parliament has been postponed to Monday afternoon. If the deal is defeated, state media say banks could be closed on Tuesday so as to avoid mass withdrawals.
The Cypriot president’s Democratic Rally party – which has 20 seats in the 56-member assembly – needs support from other factions to ratify the bailout.
Opposition leader George Lillikas, an independent, said the president had “betrayed the people’s vote”.
The speaker of the European Parliament, Martin Schulz, argued in a newspaper interview that there should be an exemption from the levy for savers, for example, who had less than 25,000 euros in their accounts.
“The solution must be socially acceptable,” Martin Schulz, who belongs to Germany’s opposition Social Democrats, told Germany’s Welt am Sonntag newspaper.
The German Chancellor, Angela Merkel, defended the levy, saying: “I think it’s a good step which will certainly make it easier for us to approve the help for Cyprus.”
As with past eurozone bailouts, the deal must be approved by the lower house of parliament in Germany, the EU’s biggest economy.
If the levy goes ahead, it will affect many non-Cypriots with bank accounts.
However, depositors in the overseas arms of Cypriot banks will not be hit.
The levy itself will not take effect until Tuesday, following a public holiday, but action is being taken to control electronic money transfers over the weekend.
Spain’s Prime Minister Mariano Rajoy has begun addressing parliament, setting out a new raft of austerity measures aimed at balancing the budget.
His speech comes as hundreds of Spanish miners arrived in Madrid to protest against government cuts to subsidies.
Mariano Rajoy is expected to unveil a rise in VAT as well as cuts to social security and unemployment benefits.
The measures are in return for a eurozone bank bailout and an extension to Spain’s deficit reduction targets.
Eurozone finance ministers have agreed to provide 30 billion Euros for Spain’s troubled banks by the end of the month and to give Madrid an extra year – until 2014 – to hit its budget targets.
Mariano Rajoy told parliament that the measures he was announcing had to be adopted without delay.
Spain’s Prime Minister Mariano Rajoy has begun addressing parliament, setting out a new raft of austerity measures aimed at balancing the budget
“The excesses of the past are being paid for right now,” he said, adding that Spaniards had never before experienced such a recession.
Without a cut in Spain’s budget deficit, public services would be put at risk.
The door had been opened to a new EU model, he said, and the summit agreements had committed everyone equally.
Analysts say European leaders want to see a credible Spanish plan for viability and deficit reduction.
Mariano Rajoy warned on Saturday that further austerity was on its way, in a country with unemployment running at more than 24% and rising street protests over drastic spending cuts.
On Monday, budget minister Cristobal Montoro warned of an impending VAT rise, telling a business forum: “If VAT was paid by more of those who are supposed to pay, it would not have to be raised by so much.”
Most of the miners arriving in Madrid late on Tuesday had walked hundreds of miles since 22 June from northern Spain where protests outside coal mines have resulted in clashes with police.
They were greeted by thousands of supporters as they marched on Gran Via in the centre of the Spanish capital.
A second mass rally of miners is due to take place on Wednesday and unions hope it will draw at least 25,000 people.
The miners are angry at plans to slash coal industry subsidies from 301 million Euros last year to 111 million Euros this year.
Unions say the cuts threaten 30,000 jobs and could destroy their industry.
The Spanish government argues that it pays disproportionately high subsidies to a small and unprofitable part of the economy.
Overnight the miners streamed down Madrid’s streets with their helmet lamps shining in the dark.
Crowds lined the streets, chanting support.
“We didn’t expect such a big welcome,” said Roberto Quintas, a miner of 22 years from Villablino near Leon.
“The fact that people are coming into the street and mobilising is a good sign.”
Manuel Cinoceda, a retired miner from the Aragon region, added: “The fight is for something just, we are just coming to claim what is ours.”
Spain’s 30 billion-euro bank bailout will be the first installment of a package worth up to 100 billion Euros agreed in June.
Eurozone ministers must get approval from their own parliaments and hope to make the payment by the end of July.
Some less-than-enthused analysts are already warning their clients against buying Facebook’s shares one day after the social networking site rolled out its much-anticipated IPO.
Brian Wieser, an analyst at Pivotal Research Group in New York, said that Facebook’s shares were implausibly priced, leading him to put a “sell” rating on the stock.
Facebook’s less-than-stellar debut saw its shares end the day on Friday just 23 cents, or 0.6%, higher than its initial price, at $38.23, valuing the company at $104.2 billion – even though it only made $3.7 billion last year.
The shares opened up 11% at a respectable price of $42.05 in the morning, and jumped as high as $45 at one point, only to fizzle out after initial technical difficulties delayed the start of the trading by about two hours.
Facebook’s less-than-stellar debut saw its shares end the day on Friday just 23 cents, or 0.6 percent, higher than its initial price, at $38.23, valuing the company at $104.2 billion
“While we like the company, we’re troubled by investors’ perception of the risks,” Brian Weiser told the Sunday Telegraph.
“It’s priced for perfection and that’s clearly implausible.”
Company filings after the market closed on Friday night revealed the extent to which the banks who underwrote Facebook’s massive $6 billion IPO were forced to move in and prop up Facebook’s shares to prevent them from nosediving below $38, the New York Post reported.
Morgan Stanley, Facebook’s lead financial adviser, ended the day with 162 million Facebook shares worth $6.16 billion. Other banks, including JP Morgan and Goldman Sachs, ended the day with $3.2 billion and $2.4 billion holdings, respectively.
According to Wall Street experts, without the “bank bailout”, Facebook’s IPO would have been a dud on Friday.
The heavy buying, however, decreased the banks’ already small fees on the deal: the underwriters agreed to accept just 1.1% of the $16 billion Facebook raised in the IPO.
After splitting $176 million in fees, the firms likely spent around $380 million on the shares, wiping out their already-meager profits.
Doing a post-mortem of the disappointing IPO roll-out, many experts put the blame on the bankers for setting the price too high.
The banks were apparently wary of pricing the shares too low, aiming for a modest first-day gain of anywhere between 5% and 10%, which failed to materialize.
Facebook had increased the number of shares being sold in the IPO by 25%, to 425million, with most of the additional float coming from early investors looking to cash out – a move that had raised a red flag among analysts.
It remains to be seen what the future holds for Facebook. The social media giant will be forced to balance the need to feature more advertisements on the site with the risk of alienating its 900 million users, whose loyalty is integral to Facebook’s success.
The fact that Facebook will have to make further acquisitions, and has a still unproven advertising model, are two of the reasons why Pivotal argues Facebook stock should have been priced no higher than $30.
“None of this is to take away from the fantastic success of the company,” said Brian Wieser.
“It’s just not consistent with the economics.”
When trading resumes at New York’s NASDAQ exchange on Monday morning, investors will be watching closely to see how Facebook shares perform in the heels of the lackluster first day.
Meanwhile, the Securities and Exchange Commission, the financial regulator, has said it will review the technical glitches that marred the roll-out of the IPO to determine the cause of the delay.