Thread: "I Went To Sleep Friday A Rich Man, I Woke Up Poor" Another non-Russian, non-oligarch

"I Went To Sleep Friday A Rich Man, I Woke Up Poor"


Submitted by Tyler Durden on 03/29/2013 16:02 -0400

Another non-Russian, non-oligarch, non-billionaire, non-tax-evader speaks up...

So much has been written of the Cypriot bail-ins and massive haircuts for the uninsured depositors - assumed to be nasty oligarchic Russian money-launderers - that, it appears, the reality for people living in Cyprus has been forgotten. We noted earlier the small business issues, but as the Sydney Morning Herald reports, real lives have been destroyed. 65-year-old John Demitriou retired (back) to the picturesque fishing village of Liopetri, Cyprus, with his life-savings of around $1 million living off the interest it paid from Laiki 'Popular' Bank and spending it on his grandchildren. He was in no hurry to invest it; to spend it on big purchases.

Then, after being told just last week by his bank manager, "there's no problem, nothing to worry about," he so painfully notes, "I went to bed Friday as a rich man. I woke up a poor man," as Laiki's depositors over EUR100,000 were devastated thanks to the bail-in. The Australian Department of Foreign Affairs notes, "there is no need for special measures," to help John (or the other 5000 Cypriot-Australians on the island) as he exclaims, "it's not Russian money; it's not black money; it's my money."

Via Sydney Morning Herald,

''Very bad, very, very bad,'' says 65-year-old John Demetriou, rubbing tears from his lined face with thick fingers. ''I lost all my money.''

John now lives in the picturesque fishing village of Liopetri on Cyprus' south coast. But for 35 years he lived at Bondi Junction and worked days, nights and weekends in Sydney markets selling jewellery and imitation jewellery.

He had left Cyprus in the early 1970s at the height of its war with Turkey, taking his wife and young children to safety in Australia. He built a life from nothing and, gradually, a substantial nest egg. He retired to Cyprus in 2007 with about $1 million, his life savings.

He planned to spend it on his grandchildren - some of whom live in Cyprus - putting them through university and setting them up. There would be medical bills; he has a heart condition. The interest was paying for a comfortable retirement, and trips back to Australia. He also toyed with the idea of buying a boat.

He wanted to leave any big purchases a few years, to be sure this was where he would spend his retirement. There was no hurry. But now it is all gone.

''If I made the decision to stay, I was going to build a house,'' John says. ''Unfortunately I didn't make the decision yet.

''I went to sleep Friday as a rich man. I woke up a poor man.''

His money was all in the Laiki ''Popular'' Bank which was the main casualty of Cyprus' bailout package set by the European Union. Laiki is to be dismantled. Savings of less than €100,000 are to move to the Bank of Cyprus. Anything more than that will almost certainly be wiped out as the bank is wound down, its remaining assets taken by the bank's creditors.

Last week he heard a rumour that the bank was in trouble and went into Aiya Napa to ask his bank manager - a friend - if he should move his life savings.

''There's no problem, nothing to worry about,'' he was told.

Not so. ''I go to bed and I can't sleep. I walk around, I have a coffee. I am thinking about my family.''

John's tears flow. As he chokes up, his son George, who moved to Cyprus in 1990, explains.

''The whole family, we used to work at the markets. I would work at the markets on the weekend to help my parents while my mates were off having fun. Honest work in honest jobs. Now all that hard work is paying the debts of other people and the government. It's disgusting, to be honest.''

George says he can start again - if things get worse he and his family might move back to Australia.

''But not my dad. He can't go back to Australia. He is not allowed to fly because of his heart, and anyway where would he live? He has no house. He will have €100,000 left to live off. Soon he's not going to have a cent to his name.''

John has a thin hope. His money was sitting in the bank in Australian dollars instead of euros, so he wonders if it would be exempt from the bank's collapse. But the bank's doors are closed, so he doesn't even know to whom he should put that argument.

''For the moment I am 'sitting on charcoal', as they say,'' waiting to see if he gets burnt.

''It's not Russian money, it's not black money. It's my money.''

There are almost 5000 Cypriot-Australians on the island. Most are - or were - self-sufficient veterans of the 1950s engineering boom or the 1974 war who came back to retire or to be with family (John is looking after his 90-year-old mother).

This week Britain stopped paying pensions into Cypriot accounts, advising expatriates to open a British bank account instead.

Australia's high commission in Nicosia has already fielded inquiries from dual nationals seeking advice on their pensions. They were told to set up different payment arrangements, a spokeswoman for the Department of Foreign Affairs and Trade said.

''We expect the main impact will be for Australians who have invested large sums in Laiki Bank or the Bank of Cyprus,'' she said. ''There is no need for special measures at this stage.''


"I Went To Sleep Friday A Rich Man, I Woke Up Poor" | Zero Hedge

the Banksters want your Money

they all need to be locked up and Treated for a Gambling Addiction that they are using YOUR Money to Feed their Bad Habits

Caught In The Cyprus Crossfire: Small Businesses Suddenly With Zero Cash | Zero Hedge

10%... 40%... Now An 80% Confiscation Scheme?

Submitted by Phoenix Capital Research on 03/28/2013 11:37 -040

The news coming out of Cyprus only gets worse.

It was bad enough that the political class even promoted the idea of STEALING depositors’ savings. But now we’re finding out that they lied time and again about how much they’d take.

Initially the plan in Cyprus was the following:

Simply TAKING 6.75% of ALL savings accounts up to the official insurance limit of €100,000
A 9.9% levy (THEFT) on all deposits above the official insurance limit of €100,000.

The idea was put to a vote by the Cyprus Government, which rejected it. However, the facts remain that this idea WAS suggested. In fact, the original proposal from Germany and IMF was even more dramatic:

Cyprus state broadcaster CyBC reported on Saturday that German Finance Minister actually entered the Eurogroup meeting on Friday proposing a 40 percent haircut on Cypriot bank accounts. Sarris stated on Saturday that this had also been the proposal of the International Monetary Fund.

Sarris stated in Brussels that in view of the threat from the European Central Bank for banks in Cyprus to shut down and chaos to ensue, the increase in interest taxation and the haircut to bank accounts became necessary. “A disorderly default, that was a genuine possibility, has been averted,” he said.

ekathimerini.com | Shock in Cyprus as bailout brings bank account haircut [update]

Please reread that first paragraph: Germany and the IMF wanted to take 40% of all depositors’ accounts. Imagine nearly half of your savings being simply TAKEN one day to bail out a bank. That’s what Germany and the IMF proposed.

And we now find out that it could be far worse than even that:

Cyprus's finance minister said Tuesday that large deposit holders at Cyprus Popular Bank PCL (CPB.CP), the island's second biggest lender, could face losses of as much as 80% on their deposits as the government moves to wind down its operations.

Speaking in a television interview with state broadcaster RIC, Michalis Sarris indicated that it could also take years before those depositors see any of their money returned.

"Realistically, very little will be returned," Mr. Sarris said.


Cyprus Finance Minister: Uninsured Laiki Depositors Could Face 80% Haircut | Fox Business

So… first it’s 10% on savings about €100,000… then we find out actually 40% was proposed… and NOW they reveal that realistically it could be as much as 80%.

As a quick aside, anyone who believes this could never happen in the US should consider that John Corzine stole over $1 billion worth of client funds during MF Global’s collapse in the US. Corzine is not in jail and in fact remains one of the most connected financial elites in the US. Indeed, NO ONE went to jail for MF Global’s theft.

There can be little doubt that European elites took note of the MF Global case and believed a similar idea could be foisted upon the European public during extreme times of Crisis. The only difference between MF Global and Cyprus is that in the former case the funds that were stolen were invested in commodity futures and other securities whereas in Cyprus they were savings.

Investors take note: a major development is at hand. As bankrupt nations and banks continue to spiral downward there will be more and more desperate attempts to plug the holes in their balance sheets by any means necessary. And it will be a LOT more than they claim,

The idea of confiscating savings is now on the table. And under an extreme enough crisis, this idea could indeed be implemented: the proposal will likely be “you, the people of this nation can choose…we can take 7% of your savings and your bank remains afloat or you lose everything.” Be prepared for this.

If you’re an individual investor worried about what Europe’s Crisis really means for your portfolio, we’ve published a FREE Special Report outlining exactly that. It’s titled, What Europe Means For You and Your Savings.

In this report, we outline the risks Europe’s banking crisis holds not only for those in Europe, but for savers around the world. We also explain how this crisis will most likely unfold, including which areas are most at risk in the financial system. And we cap it off by listing multiple backdoor plays on Europe that investors can use to profit from Europe’s Crisis.

You can pick up a FREE copy here:

What Europe’s Collapse Means For Your Savings

Thank you for reading!

Graham Summers

10%... 40%... Now An 80% Confiscation Scheme? | Zero Hedge

Guest Post: Why Mr. Dijsselbloem Is Right And Cyprus Is A Template For The Eurozone


Submitted by Tyler Durden on 03/29/2013 10:48 -0400

Submitted by Martin Sibileau of A View From The Trenches blog,

...Far from being a unique situation, the fragile exposure of unsecured depositors across the Euro zone is the norm...At the end of my last letter, I anticipated I would devote the next one to explain why, in my view, the European Central Bank is hypocritical on the Cyprus situation and why the rest of the periphery has to expect the same fate than Cyprus. Fortunately for me, Mr. Jeroen Dijsselbloem who is both Dutch Finance Minister as well as the leader of the Eurogroup of Finance Ministers, confirmed my second point in a press conference 24 hours later, making my work easier…A quick view of a bank’s capital structure

There are multiple issues on the Cyprus event. Perhaps the most relevant is the fact that unsecured depositors were sacrificed because their banks did not have enough subordinated debt to bail in. For this reason, the official story goes, Cyprus is a special case. Let me explain this point. In the figure below, I show the stylized version of the capital structure of a bank. From top to bottom, every portion of it is subordinated to the one immediately above it. It is clear that the least subordinated should be the deposits that finance a bank.
What is clear to us was not clear to leaders of the European Union. At closed doors, they first decided that deposits above EUR100M would arbitrarily lose 9% (in spite of existing subordinated debt to bail in) and put the matter to vote….only to revise this figure a week later up to 40% and without voting. It was hardly an ordinary bankruptcy proceeding; banks did not go through an ordinary liquidation and nobody could see an actual market appraisal of recovery values across the capital structure. The portion of such structure, which was supposed to be the most protected, saw its recovery value fluctuate between 9% and 40% within days because folks who live far away from this drama decided so over a weekend. On the other hand, those who held deposits of amounts below EUR100M are only entitled to them nominally. Effectively, they cannot withdraw their monies, let alone send them outside Cyprus. If they hold demand deposits believing that they can serve as medium of indirect exchange and they cannot use them precisely for that function, their property was affected, regardless of what the official story says.Let’s return then to the thesis that Cyprus is a special case because the subordinated debt of its banks did not provide with enough cushion in the liquidation. As you can see from the figure above, the thicker the subordinated debt tranche is they lower the likelihood that unsecured senior debt and depositors will be affected. If Cyprus is a special case and it is not a template for the rest of the Euro zone banks, then it must be true that the rest of the Euro zone banks have stronger tranches below that of depositors. The sections below will show that during the last year (since March 2012):a) The same Euro zone authorities that imposed the loss on unsecured depositors were the ones who enabled a cash-out of subordinated debt holders, leaving depositors exposed to the firing squad,b) The Fed has been the ultimate enabler of this situation, andc) The fate of the US dollar is indirectly coupled with the fate of the Euro zone = There is no place to hide.How the ECB financed the exit of subordinated debt holders

In December of 2011 and February 2012, the European Central Bank (ECB) extended longer-term refinancing operations to provide liquidity to euro zone banks. The liquidity, in euros and at a below market price, was against sovereign debt held by the banks, as collateral. Part of this liquidity was used for what is called “liability management” exercises, where the banks changed the composition of their liabilities: They borrowed from the ECB to repay their subordinated debt holders. This is the reason why Cyprus should actually be a template for the rest of the Euro zone. Because across the Euro zone, subordinated debt was reduced, leaving unsecured depositors exposed….again, across the Euro zone. The figure below, with the aggregate balance sheets of the main players, should help visualize what happened during the last twelve months:In step 1, we see the focused balance sheet of the Euro zone banks and their subordinated investors (i.e. holders of subordinated debt), with regards to the subordinated debt. The same is a liability to the banks and an asset to the investors.In step 2, we see the aggregate change caused by the extension of the LTRO Loans (i.e. loans issued under longer-term refinancing operations, by the ECB). These loans are an asset of the ECB and a liability to the banks.





Against these loans, the ECB issued Euros, which are an asset of the banks and a liability to the ECB.In step 3, we see the transaction that I hold responsible for allowing unsecured depositors to be fair game across the Euro zone. With the Euros loaned by the ECB, banks bought out subordinated investors. Unfortunately, I have not had the time to quantify the exact impact of this transfer to date. However, reviewing past research notes released at that time (March 2012), my point will be clarified. (ADDENDUM: I HAVE BEEN GENEROUSLY FORWARDED TO THIS LINK, WHERE ZEROHEDGE.COM DID THE MATH ON THIS POINT, PROVIDING AN UPDATED STATUS OF THE ISSUE)
On March 28^th, 2012, Barclays’ Credit Research team had published a report titled “European Banks: Liability management shrinks the bank capital market”. In it, it was estimated that at the end of March (only one month after the second LTRO), about 20% of the subordinated debt (equivalent to EUR97BN) had been targeted for exchange. The average exchange ratio of the transactions had been calculated at 82% of par (74% for Tier 1 and 89% for Lower Tier 2). The reductions were split as follows: Close to 35% of cash out in the Tier 1 market (EUR54BN), 12% reduction of the Lower-Tier 2 (EUR37BN), and 18% reduction in Upper-Tier 2 (EUR6BN).According to Barclays too, all the transactions had been bondholder-friendly, with an average 7pt (i.e. 7%) premium to secondary market across all issues (9pts for Tier 1, 5pts for Lower Tier 2). The main motivation behind all the transactions was capital optimization. They created capital gains to the banks. Except for two transactions in which the subordinated debt was exchanged for common stock or new Lower Tier 2, the rest were all tenders for cash. Greek banks in particular (i.e. National Bank of Greece, EFG Eurobank and Piraeus Bank) also participated in this liability management exercise; in some cases (i.e. Piraeus’s Prefs at 37 and LT2 floater at 50, announced on Mar 7/12) at premiums ranging 10 to 17pts.In other words, both banks and subordinated debt holders enjoyed great capital gains, leaving unsecured depositors exposed to higher risk. This played out in the context of a virtuous cycle, where the cheaper funding improved the risk profile of the financial institutions and attracted capital back to the Euro zone. In the process, both the Euro appreciated and the EURUSD basis tightened, which furthered strengthened the equity of the financial system. The depositors of course, continued to receive mere basis points for their trust. On May 29^th and later on June 25^th, I had warned about the danger of this outcome.But the story did not end here. In steps 4 and 5 of the figure above, I show the impact the Fed had in all this with its quantitative easing policy. By literally printing money in US Treasuries purchases, it added fuel to the fire, because Euro zone banks took advantage of the situation to borrow cheap US dollars, helping them repay their LTRO loans. Zerohedge.com has explained this with more detail than I can provide in this note, (in chronological order) here, here and here. I recommend that you read these articles in detail, if you want to understand how the game is going to end.Step 6 seeks to show the status quo after the party. If the Cyprus situation is contained (which I doubt), going forward we should see the reduction in both assets (i.e. LTRO loans) and liabilities (i.e. Euros) at the balance sheet of the ECB and the banks, with banks replacing LTRO repaid loans with unsecured USD funding.The Fed as the ultimate enabler tied the fate of the USD to the Euro

If you noticed, I circled the US Dollars held at the balance sheet of the Euro banks in step 6 of the figure above, as an asset. I did this because I want to emphasize a point I have been making for a long, long time: The collapse of the Yankee bond market (i.e. the market for bonds denominated in US dollars, where the borrowers are non-US resident corporations), caused by corporate defaults in the Euro zone will unmask the exposure that the Fed has to the fate of the Euro zone. The dollars that end up with the Euro zone banks get recycled in multiple ways and one of them is via the Yankee market (another one is of course the USD loan market).It should be clear therefore that this whole transfer of wealth will ultimately (and irresponsibly by the Fed) end up exponentially (through leverage) affecting those holding their savings in US dollars.




Final words

I am confident that the story above shows that far from being a unique situation, the fragile exposure of unsecured depositors across the Euro zone is the norm; and that their fragility was further increased in the last twelve months thanks to policies created by the same authorities who now refuse to honor their promise of a banking union, and instead impose capital controls, which have effectively destroyed any credibility on the safety of capital in the Euro zone.One last word of caution: I think it would be wrong to interpret from the process depicted above that there was a premeditated conspiracy on the part of policy makers to weaken the position of depositors. This outcome, I believe, was simply an unintended consequence in their efforts to sustain the Euro zone. However, even if one accepts my view, the unintended outcome begs the following question: Why was there cheap money available for subordinated debt holders to cash out, but there is none now to protect the savings of depositors? Nobody can answer that question but with speculation, and as such, intellectual honesty demands that I keep mine to myself, because as Mark Antony said in Shakespeare’s “Julius Caesar”: “…You are not wood, you are not stones, but men; and being men, it will inflame you, it will make you mad”.

Guest Post: Why Mr. Dijsselbloem Is Right And Cyprus Is A Template For The Eurozone | Zero Hedge