The Star Online: Business
The Star Online: Business |
- Cypriot parliament to debate levy only after Eurogroup meeting
- Cyprus closes in on EU bailout, U-turn on levy
- Wall Street Week Ahead: Cyprus deal could spur S&P 500 to new peak
| Cypriot parliament to debate levy only after Eurogroup meeting Posted: 23 Mar 2013 01:31 AM PDT Published: Saturday March 23, 2013 MYT 4:32:00 PMNICOSIA: The Cypriot parliament will not debate a possible levy on bank deposits until after finance ministers of the 17-nation euro zone meet on Sunday, a senior lawmaker said on Saturday. "We will meet after the Eurogroup meeting. I don't know when," the lawmaker, who declined to be named, told Reuters. - Reuters |
| Cyprus closes in on EU bailout, U-turn on levy Posted: 23 Mar 2013 01:14 AM PDT NICOSIA: Cyprus is expected to make a dramatic U-turn on Saturday to avert the imminent threat of financial meltdown, having signaled it is willing to tax big savers in its stricken banks to clinch a bailout from the European Union. The island's partners in the 17-nation euro zone scheduled a meeting for Sunday in Brussels, in a strong sign they believe a solution is near. As hundreds of demonstrators faced off with riot police outside parliament late into Friday night, lawmakers inside voted to nationalize pension funds, pool state assets for a bond issue and peel good assets from bad in stricken banks. Officials said a deal was imminent to raise 5.8 billion euros demanded by the EU in return for a 10 billion euro ($13.00 billion) lifeline, including some kind of levy on bank deposits, which could be voted on as soon as Saturday. Without a deal by Monday, the European Central Bank has threatened to cut off cash for Cypriot banks, spelling certain collapse and possible ejection from the euro. Cyprus moved perilously close to bankruptcy when its parliament threw out the proposed levy on Tuesday, with Cypriots enraged by plans to hit small holdings of ordinary savers as well as large accounts, many held by foreign investors. In the absence of the bank levy, Nicosia turned to Russia, whose citizens have billions of euros at stake in Cyprus's outsized banking sector. But Finance Minister Michael Sarris returned from Moscow empty-handed. On Friday he said the bank levy was back "on the table". Party officials told Reuters that discussions were centered on a levy on depositors holding over 100,000 euros, sparing smaller savers. One official said the tax could be limited to big savers at the island's biggest lender, Bank of Cyprus, at a 20 percent rate. Lawmakers adopted a bill that would pave the way for the government to split its failing lenders into good and bad banks. The measure is likely to target Bank of Cyprus and No. 2 lender Cyprus Popular Bank, also known as Laiki, and would make it easier for the government to safeguard deposits that enjoy a state guarantee of up to 100,000 euros. "With the process of consolidation, the depositors over 100,000 euros will wait for several years to see how much of their deposits they will collect," said Averof Neophytou, deputy leader of the ruling Democratic Rally party. "At the same time, this political decision to support this harsh law safeguards 100 percent of the deposits of 361,000 depositors in Laiki Bank," he added, referring to depositors with up to 100,000 euros. In Finland, an ally of Germany in disciplining euro zone partners, European affairs minister Alexander Stubb told Reuters he was confident Cyprus would accept EU rescue terms "because there are no other options". The pace of the unfolding drama has stunned Cypriots, who barely a month ago elected conservative President Nicos Anastasiades on a mandate to secure a bailout. But lawmakers balked at hitting small savers with the bank levy, a rejection of the kind of strict austerity signed up to by Portugal, Ireland, Greece, Spain and Italy over the last three years of Europe's debt crisis. Germany warned Cyprus it was "playing with fire". Moody's downgraded its credit rating on deposits in Cypriot banks to Caa3, just two rungs from the bottom on its 11-grade scale of junk debt. The EU says the only way to find the 5.8 billion euros Cyprus needs to contribute to the bailout of its banks is from the depositors who put money in them. The tottering banks hold 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros - enormous sums for an island of 1.1 million people which could never sustain such a big financial system on its own. Much of the banks' capital was wiped out by investments in Greece. Many of the biggest depositors are foreigners, including rich Russians, and European politicians are loathe to spend taxpayers' money on a bailout if the depositors take no losses. "EDGE OF AN ABYSS" With banks in Cyprus closed until Tuesday, Cypriots have been besieging bank cash machines all week. Faced with an almost certain run on banks when they reopen, parliament also gave the government the power to impose capital controls. "Our so-called friends and partners sold us out," said Marios Panayides, 65, a protester at the parliament. "They have completely abandoned us on the edge of an abyss." Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. "At the moment, supplies will last another two or three days," said Adamos Hadijadamou, head of Cyprus's Association of Supermarkets. "We'll have a problem if this is not resolved by next week." The Bank of Cyprus urged the government to go back and cut a deal with the EU under which larger deposits over 100,000 euros would be taxed. It was preferable, it said, to a collapse of the system and ejection from the euro which would wipe out assets. "There must be no further delay," the bank said. Taking a first step toward financial consolidation, Cyprus arranged on Friday for the takeover of big Greek units of its two biggest banks by a Greek competitor. EU officials criticize Cyprus for initially insisting any deposit levy should hit even small savers. Cypriot leaders did not want to shift the whole burden to bigger depositors in the apparent hope of saving Cyprus's offshore banking industry. German Chancellor Angela Merkel told lawmakers that while she wanted to keep Cyprus in the euro zone, it must first recognize it had no future as an offshore financial center, two parliamentarians told Reuters. Her finance minister, Wolfgang Schaeuble, said that muted reactions to the crisis in financial markets showed the euro zone was able to contain the Cyprus problem. The Dutch head of the euro zone finance ministers' group, Jeroen Dijsselbloem, said the group wanted to keep Cyprus in the currency union. But when asked, he did not rule out an exit. "All kinds of scenarios are possible and the scenarios we're focusing on are to come to a joint solution in which Cyprus is saved but in which the banking sector continues in a smaller but healthier form." - Reuters |
| Wall Street Week Ahead: Cyprus deal could spur S&P 500 to new peak Posted: 23 Mar 2013 01:12 AM PDT NEW YORK: Stocks could break through to all-time closing highs next week - provided a resolution to the fiscal woes of Cyprus satisfies investors. The island nation accounts for a fraction of euro zone economic output, and yet the wrangling over a 10 billion euro($13 billion) bailout package kept markets on edge throughout this past week. The S&P 500 fell for the first time in four weeks, with weakness linked to uncertainty overseas. The Cypriot ruling party said Friday that it was close to a deal to raise billions of euros in order to secure a bailout from the European Union to avoid a financial meltdown and a potential exit from the euro. Euro zone leaders have offered the country 10 billion euros on the condition it raises 5.8 billion euros on its own. The rescue plan is smaller in scope than previous bailouts to euro zone members, making investors worry less about a banking collapse and more about the possibility Cyprus would exit the bloc and drop the euro currency. The worry "is the psychological knock-on effect of the credible possibility of some (country) saying Cyprus got out, now they are on their own, they devalued their currency, they don't have to go through austerity'," said Art Hogan, managing director at Lazard Capital Markets in New York. "What is going to stop Greece from doing the same thing? And you start a daisy chain." Similarly, investors had reacted harshly to proposals by European officials to tax depositors - including those protected by depositor insurance - to fund the bailout. That sparked some selling on the idea that such a plan could set a precedent for dealing with other troubled euro zone economies, and set off bank runs across the continent. Assuming Cyprus's troubles are solved, investors will turn their attention to economic data due during the holiday-shortened week, with equity markets closed on Friday for the Good Friday holiday. The data will include orders for durable goods orders and pending home sales for February as well as the final reading of fourth-quarter gross domestic product. But with the trend of economic data showing a slow improvement in the U.S. economy, few negative surprises are expected next week. That could enable the S&P 500 <.spx><.inx> to once again make a run at its all-time closing high of 1,565.15. After all, for all of the worry about Cyprus, the S&P only dipped 0.3 percent this week and the benchmark index remains up more than 9 percent for the year. "The story doesn't seem to be weakening and domestically it seems to be growing in terms of strength," said Sandy Lincoln, chief market strategist at BMO Asset Management U.S. in Chicago. "People are looking at a better backdrop, whether it is the jobs data, the GDP data or the consumer stepping up on the retail sales side in spite of fiscal drag." Stocks could see another boost in the form of quarter-end "window dressing" in which money managers add outperforming stocks to their portfolios. "You are coming into the end of the quarter, everybody has some great results. You are going to get some window dressing on some of the stocks that are doing well," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. With earnings season several weeks away, only nine S&P 500 companies are expected to report quarterly results next week, including discount retailer Dollar General Corp Only a few companies released results this week, but they were disconcerting. Oracle Corp According to Thomson Reuters data, of the 491 companies in the S&P 500 that have reported quarterly earnings, 69 percent have topped analysts' expectations, compared with 62 percent since 1994 and 65 percent over the past four quarters. A strong showing next week could push the index past both its record closing high as well as its record intraday high of 1576.09. But the index has faced stiff resistance in prior attempts to break the mark, climbing as high as 1,563.62 before losing steam. As more attempts to break the mark fall short, the likelihood of a bigger dip that many analysts have been expecting increases. "Every time it gets up there, it seems to sell off, so you have to get through that resistance point," Mendelsohn said. "Once we get through that resistance point that will probably bring more buyers in. If you can't get through it, that will probably encourage some of the sellers a little bit." - Reuters |
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