Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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Categorized | Capital Markets, Equities

Bank of Cyprus – the noose tightens


Posted on March 31, 2013

The noose is tightening around Bank of Cyprus. The stricken island’s number one lender is being frogmarched dangerously close to the same fate as Laiki Bank, the number two. Laiki is being dismantled as part of the €10bn bailout; only its insured deposits up to €100,000 are untouched. The Cypriot central bank now says that uninsured depositors above the same threshold at Bank of Cyprus could see 60 per cent of their savings eaten up in its restructuring – far more than they were led to believe last week. The more the Cyprus crisis unfolds, the more likely it becomes that Bank of Cyprus will be devoured too.

    The bank’s uninsured depositors will get shares – with voting rights and dividends, you lucky people – in exchange for 37.5 per cent of their net deposits over €100,000. A further 22.5 per cent will be frozen and may be converted into shares later. The other 40 per cent will be unfrozen “in a short period of time”. An independent valuer will assess what Bank of Cyprus is worth for the purpose of this forced exchange. That should not be too difficult. With the island’s economy predicted to shrink by up to a quarter as the rigours of the bailout take hold – as happened in Greece – and bad loans sure to jump, the earnings outlook at Bank of Cyprus is dire. Its share price has fallen nearly 95 per cent in the past two years as Cyprus fell victim to contagion from Greece and its own calamitous policy errors. Its residual equity value has been wiped out by the rescue package.

    One ray of hope for the eventual emergence of Bank of Cyprus as a viable business comes from Ireland. Bank of Ireland escaped full nationalisation when the nation’s banks collapsed. It is now 40 per cent owned by a group of US investors, which put €1bn into its recapitalisation in 2011. Cyprus and its banks, alas, are a long way from such a moment.

    Email the Lex team in confidence at lex@ft.com