The information below is based on quality media reports made today (March 25th). However, at this stage there is very little official information published about the agreement, so important details may be subject to change.
1. Bank Popular (Laiki) will be closed. Accounts less than Eur100k will go into Bank of Cyprus, which will get support from the ECB. In cases where accounts have more than Eur100k, it is not formerly stated whether the first first Eur100k will be transferred to BoC, but this is a reasonable assumption. Investments remaining in Bank Popular will be written down against its losses. The owners of these deposits will be compensated with equity of the remaining bank, although this will likely have only very low residual value. Bond holds of this bank, should also expect to be written down.
2. Bank of Cyprus will remain open, receiving ECB funding and insured deposits from Bank Popular. As it is also in a very weak financial position, large depositors in this bank will likely be partially written down (estimates maximum 40% loss) to restore the banks solvency. It is currently unclear if bonds in this bank will be written down. Those experiencing write-downs may also be compensated with equity, although again the residual value will be very low.
3. In theory no other depositors in Cypriot banks will suffer losses. However, even when the banks reopen, capital controls will remain in place, it is not clear how or when money will be released from accounts. This will likely depend on how quickly Cypriot banks can liquidate assets themselves. The fact that Cypriot banks will have to sell assets to fund withdrawals explains our caution about the short-term market direction.
Best regards,
James
1. Bank Popular (Laiki) will be closed. Accounts less than Eur100k will go into Bank of Cyprus, which will get support from the ECB. In cases where accounts have more than Eur100k, it is not formerly stated whether the first first Eur100k will be transferred to BoC, but this is a reasonable assumption. Investments remaining in Bank Popular will be written down against its losses. The owners of these deposits will be compensated with equity of the remaining bank, although this will likely have only very low residual value. Bond holds of this bank, should also expect to be written down.
2. Bank of Cyprus will remain open, receiving ECB funding and insured deposits from Bank Popular. As it is also in a very weak financial position, large depositors in this bank will likely be partially written down (estimates maximum 40% loss) to restore the banks solvency. It is currently unclear if bonds in this bank will be written down. Those experiencing write-downs may also be compensated with equity, although again the residual value will be very low.
3. In theory no other depositors in Cypriot banks will suffer losses. However, even when the banks reopen, capital controls will remain in place, it is not clear how or when money will be released from accounts. This will likely depend on how quickly Cypriot banks can liquidate assets themselves. The fact that Cypriot banks will have to sell assets to fund withdrawals explains our caution about the short-term market direction.
Best regards,
James
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