Yet again today, I have a lot of links on Cyprus. I will start making some more pointed commentary behind the paywall today on the goings on there. I have been doing a lot of tweeting on this topic since early Saturday. If you’re not already on twitter, you should be. Follow me at @edwardn and here is a list of other finance tweeters to follow and a list of good general and finance news sources. If you read other western European languages and are interested in Europe, follow this list. Twitter is an invaluable source of real-time news.
News links for 18 Mar 2013
“The Justice Department last year opened an investigation into allegations that employees at The Wall Street Journal’s China news bureau bribed Chinese officials for information for news articles.
A search by the Journal’s parent company found no evidence to support the claim, according to government and corporate officials familiar with the case.”
“George Osborne will admit in Wednesday’s Budget that it will take even longer than previously forecast for public sector debt to begin to fall.
His bleak message will further damage the government’s reputation for economic competence.
Having originally committed to bring the burden of public debt down by 2015-16 at the latest, the chancellor extended that target by a year in December and is now preparing to concede another delay to 2017-18.”
“European banks will need to shed as much as another €3.4tn from their balance sheets over the coming years by reducing lending and selling assets according to new data, adding to fears about a funding gap opening for European corporates.
Europe was already bracing itself for about €2.4bn of “non-core” asset disposals – more than 7 per cent of total banking assets – over the next seven years as banks are mandated to reduce the risk on their balance sheets.
But new figures from PwC, the consultancy, to be released on Tuesday, suggest the problem of banks retreating from their traditional lending activities could be far worse than expected.”
“Ahead of the vote in parliament, the government was working on a plan to soften the blow to smaller savers, by tilting more of the tax towards those with deposits greater than 100,000 euros ($130,700) – many of them Russians, eliciting an angry reaction from President Vladimir Putin.
The government says Cyprus has no choice but to accept the bailout with the levy on deposits, or go bankrupt.
A Cypriot government source told Reuters the introduction of a tax-free threshold for smaller bank deposits was under discussion but not yet agreed.”
“For the first time in the six years of the iPhone’s life, Apple seems to be going on the defensive, and with good reason. Apple’s global marketshare is slowly shrinking alongside the growth of Android, and Samsung is leading the way as smartphone king, shipping over 50 million Galaxy S IIIs since the phone launched.
And remember, that’s just one of dozens of phones Samsung launches on the Android OS every year.”
“This won’t be popular. It follows from points I made in the “Savers are not sacred cows” post. What is happening with respect to Cyprus is a sign of the times. It’s a redistribution of sums hoarded, back into the economy.
That doesn’t mean I agree with the move.
I just think the situation is much more complex than many appreciate. It certainly is not expropriation in the Communist, command economy sense.
Eventually this is going to happen to everyone because we are slowly moving from a debt funded economy to an equity funded one.
The problem with Cyprus is that the equity is being forced on deposit holders. “
“Banking is a confidence trick. The modern financial system – fractional reserve banking as it’s technically called – relies on the public putting faith in their banks. After all, the nature of the system is that at any one time there’s never enough cash in bank vaults to give everyone their deposits back – which is why bank runs are so fatal.
That’s why in financial crises the cardinal rule is always to attempt to reassure savers that their deposits will be safe. It’s why we have things like deposit insurance; it’s why all Northern Rock, RBS etc savers were made good during the crisis in the UK. Yes, everyone ended up having to pay the eventual price anyway through austerity and higher taxes but people are accustomed to having money confiscated through income and consumption taxes: their savings, on the other hand, are considered inviolable”
“A couple of years back, when Carmen Reinhart and Belen Sbrancia updated the concept whereby governments might deal with a problematic mountain of debt by confiscating the savings of their subjects, the discussion was all about the subtle, sleight of hand solutions that might be employed.
Artificially cheap rates of interest might be forced on the embattled sovereign’s debt, local banks might be obliged to buy mis-priced government paper, exchange controls may be erected, and so on. Ordinary people, it seemed, could be financially repressed without realising they were in fact the victims.”
“The Cypriot Parliament may well postpone by at least a day its voting on the bailout package, originally set for 4 p.m. on Monday, according to state broadcaster CyBC. The Eurogroup is also about to hold an emergency meeting by videoconference.
The efforts to amend terms of the bill introduced by the government need to be prolonged in order to secure the approval of the House of Representatives, and the government prefers to delay its voting than risk its rejection, given it does not enjoy an overall majority in the House.”
“Apple Inc. (AAPL) is poised to boost its dividend by more than a half, according to analysts surveyed by Bloomberg, providing investors hit by a share slump with one of the highest yields in the U.S. technology industry.
Apple will probably lift its quarterly dividend 56 percent to $4.14 a share, for an annual payout of $15.7 billion, according to the average estimate from six analysts. The resulting yield of 3.7 percent would be higher than 86 percent of the companies in the Standard & Poor’s 500 Index paying dividends.”
“Reform of how to mend broken banks, which has been negotiated globally and in Europe since the Crash of 2007-8, has been based on two central principles.
First, that the savings of ordinary people should be protected, up to a high threshold – or 100,000 euros in the European Union for example.
And that financial institutions which lend to banks by buying their bonds should incur losses when banks are bailed out: bondholders should, to use the jargon, be bailed in, as part of resolution plans.”
“Bottom Line: In the short-run, the implications for the European periphery might be limited. But, in the long-run, it is hard to see the assault on Cypriot depositors as anything but a step backwards for financial stability in Europe. This crisis remains far from over.”
“Unbeknown to the Cypriot delegation members as they entered the hulking Justus Lipsius summit building in Brussels on Friday night, their fate was already sealed: their German counterparts wanted about €7bn for the estimated €17bn bailout of their country to come from deposits in the country’s banks.
“They were hand in hand with Finns, who were much more dogmatic,” said one senior eurozone official involved in the 10-hour marathon talks that stretched until 3am on Saturday morning. “Had that not happened, full bail-in,” the official added, using the terminology for wiping out nearly all Cypriot bank accounts.”
“High-yield yuan bonds were excellent performers and extremely popular investments last year. The Investment Funds Association said Hongkongers spent US$36.9 billion on high-yield funds last year, more than three times as much as on equity funds.
Mainland firms drove the Asian high-yield market. The issuers, in particular property companies, dominated corporate issuance of high-yield bonds. Surprisingly, however, until recently there has been no high-yield yuan bond fund approved for sale in Hong Kong.
BOCHK Asset Management has now addressed that void. On March 6, the firm launched its BOCHK All-weather RMB High Yield Bond Fund, the first high-yield yuan bond fund authorised by the Securities and Futures Commission. Subscription is open until this Friday.”
“Christiana Konteati, 26, a lawyer, who finished a degree in London three years ago, said: “We’re really worried that this is only the beginning: next will come salary cuts, austerity, rising unemployment and very likely people going abroad to work.”
She said the younger generation didn’t have savings to fear for but a large part of her graduate friends were unemployed including a translator, a marketing graduate, a physicist and an accountant.
One flabbergasted Larnaca bank employee, 28, was grabbing a coffee before returning to the rolling TV news he said the nation was glued to. He found the bank levy an “extraordinary” surprise. “Are we the guinea pigs? There’s a feeling they are trying this out on us before they do it elsewhere. Let’s see how the markets react.””
This video is pretty funny.
“Cypriot President Nicos Anastasiades told his citizens on Sunday that he has chosen the least catastrophic option and confirmed that depositors will get bonds linked to natural gas earnings for the haircut their bank accounts have suffered. He also said he is trying to change the terms imposed on Nicosia for the bailout of the 10 billion euros.”
“The Cypriot cabinet has declared Tuesday a bank holiday, for fear of capital flight, and this may even be stretched to Wednesday, as depositors are certain to withdraw huge sums from the Cypriot banks after the haircut imposed.”
“Cyprus’s central bank has written to the island’s lenders to ask them to block customer’s transfers and payments, according to reports on the island.
Cypriot website 24h revealed on Sunday that the Central Bank of Cyprus wrote to Cypriot lenders on Saturday, March 16 to ask them to stop all form of payments from their accounts, even those that were from one account at the bank to another.”
“People told Reuters they were angered but unsurprised that politicians should dip into citizens’ deposits. And as bankers expressed concern the proposed terms of Cyprus’s bailout could unnerve savers elsewhere, some leftist leaders voiced outrage.”
“it is a fair bet that the botching of the Cypriot bailout has ensured that the agonizing economic malaise afflicting much of Europe for four years now will be further prolonged.
It is time for plain words. The ultimate source of Europe’s financial malaise is Germany. The German financial establishment was complicit from the beginning in the inflating of some of the bubbles in the afflicted nations. Now it is not only disowning its role in causation but, by forcing austerity on national governments and refusing to allow more than token inflation of the euro, it is turning the knife in those nations’ wounds.
It is already clear that though Japan for long has enjoyed exceptionally cordial relations with Germany (neither side advertises this but it is a fact), financial officials in Tokyo are now pressuring their German colleagues to relax the austerity policy. The most obvious outward evidence of this is Japan’s sustained effort in the last four months to depreciate the yen.”
“A letter to the Federal Reserve asking about the wisdom of imposing a tax on bank deposits. And the Fed’s reply. From 1941”
Belgium is going to be forced to undergo some austerity in 2013 as well. The only country that I haven’t heard from on this that could do austerity in the euro zone is Austria.
“Russian energy giant Gazprom has offered the Republic of Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas in Cyprus’’ exclusive economic zone, Cypriot TV Station Sigma reported.”
The choice was the insured deposits, and the sparing of bank debt holders.
“Clearly the Cypriot parliament must deliver its side of the bargain by voting through the depositor levy. Several other euro-zone parliaments must also approve the bailout including, crucially, Germany’s Bundestag.
The Bundestag’s approval is almost certainly conditional on International Monetary Fund involvement. The IMF has indicated that it is likely to join the bailout, but that its involvement will depend on its own assessment of the country’s debt sustainability once the proceeds from the deposit tax have been assessed.
At the least, the euro zone is facing several weeks of uncertainty. Whether it emerges successfully depends in the first instance on the Cypriot parliament recognizing—as President Anastasiades has done—that it really has little choice.”
“A hit imposed on Cypriot bank depositors by the euro zone has shocked and alarmed politicians and bankers who fear the currency bloc has set a precedent that will unnerve investors and citizens alike.”
““The Cypriot president did not want to agree to a levy higher than 10 per cent, and if you do the numbers you get the 6.75 and 9.9 [per cent].””
“Unless there is a last-minute reprieve for small savers, most Cypriot savers would act rationally if they withdrew the rest of their money simply to protect them from further haircuts or taxes. It would be equally rational for savers elsewhere in southern Europe to join them. The experience of Cyprus tells them that the solvency of a deposit insurance scheme is only as good as that of the state. In view of Italy’s public sector debt ratio, or the combined public and private sector indebtedness of Spain and Portugal, there is no way that these governments can insure all banks deposits on their own.
The Cyprus rescue has shown that the creditor nations will insist from now that any bank rescue must be co-funded by depositors.”
“The Cypriot government was on Sunday discussing with lenders the possibility of changing the levy to 3.0 percent for deposits below 100,000 euros, and to 12.5 percent for above that sum, a source close to the consultations told Reuters on condition of anonymity.”
“This process has been happening for a long time, but for those in finance, the value of Twitter is increasingly equaling or surpassing the value of traditional sell-side research from Wall Street analysts.
This weekend’s surprise bailout of Cyprus (surprise, because of the fact that depositors in Cypriot banks are seeing a ‘one-off’ tax) is a major moment in the evolution of financial information.”
“Just as the eurozone had begun to set the right course in its struggle with an ever-mutating debt crisis, it relapsed into its old vice. Faced with a drowning member state, instead of throwing the Cypriot people a lifebuoy leaders put a millstone around its neck.
Appearances notwithstanding, the Cyprus deal does not “bail-in” creditors in an orderly resolution of bankrupt banks. Instead it imposes a tax on all depositors down to the smallest ones. However legal it may be, this rank violation of the spirit of deposit insurance – small savers in the EU are guaranteed that deposits up to €100,000 are safe regardless how moribund their bank – unforgiveably betrays those with the most to lose and the least to answer for.”
“Legal experts charged with advising German lawmakers have raised questions over the legality of plans for the European Central Bank to take over banking supervision powers next year, Der Spiegel reported.
The German weekly cited an analysis by the civil servants who work for the Bundestag Lower House of parliament as stating that European treaties suggest there is “no sufficiently sound legal basis” for the ECB’s new role as banking overseer.”
“The new inequality will be an information absorption inequality.
You can’t switch the information off. You can’t opt out without the trade off being that you will be dumber and less informed and thus probably more rubbish at making investment choices.”
“Germany’s finance minister said on Sunday Berlin would have respected the bank deposit guarantee on small savers’ insured deposits but the Cypriot government, European Commission and European Central Bank (ECB) decided against this.”
This German post is good in that it has some charts on Cyprus’ debt to GDP and deficits which make clear that there was no government debt problem in Cyprus before the crisis. The exploding government debt problem is driven by changes in the private sector.