Your stress tests do indeed show EUR2.3bn of losses on Greek debt at Laiki, and EUR110m at Bank of Cyprus. (The latter seems to be too low.)
I wonder if the EUR900m I was quoting was realised losses, rather than total. Or whether it just referred to losses in 2012.
Nevertheless, however you cut it you still can't come up with more than a quarter of the hole in the balance sheets (at absolute maximum) that is due to the Greek haircut.
Looks like Frank Field will cease to be the PB Tories favourite Labour MP tonight.
Age catches up with us all in the end.
At least the Blessed Margaret knew when to stop making inflammatory comments in public.
Frank Field needs a fresh cup of tea, a pair of comfortable slippers and a warm winter fire.
PB Tories shall forgive the old boy. He was after all a treasure in his prime.
Trouble with living in the BBC version of reality is it means you don't know what's going to happen. I can see the Daily Mail headlines on this in a year or so already. Then again maybe it's deliberate: add it to the energy policy and the NHS extreme diet strategy for getting rid of the elderly a bit faster.
Rob you may well be right but for better or worse the situation in Cyprus is going to be pinned on the Euro. At any rate it hasn't helped as they are in the straightjacket of an unsuitable currency still, not to mention the additional pain of exposure to Greece.
Your stress tests do indeed show EUR2.3bn of losses on Greek debt at Laiki, and EUR110m at Bank of Cyprus. (The latter seems to be too low.)
I wonder if the EUR900m I was quoting was realised losses, rather than total. Or whether it just referred to losses in 2012.
Nevertheless, however you cut it you still can't come up with more than a quarter of the hole in the balance sheets (at absolute maximum) that is due to the Greek haircut.
Thanks for confirmation. I was trying to check the PDF docs on a small screen and found it almost impossible to read/browse.
I think you are right that the Cypriot Banks weren't sunk immediately by losses on Greek sovereigns, but they were holed below the line, making their failure inevitable without substantial recap.
It was the other problems on the balance sheets that caused the Troika to force the closure of Laiki (to whom the ECB had lent EUR 9 bn in liquidity finance) and to insist on the depositor bailin.
This section from the Reuters article is relevant to the thread discussion:
Before joining the euro, the Central Bank of Cyprus only allowed banks to use up to 30 percent of their foreign deposits to support local lending, a measure designed to prevent sizeable deposits from Greeks and Russians fuelling a bubble.
When Cyprus joined the single European currency, Greek and other euro area deposits were reclassified as domestic, leading to billions more local lending, Pambos Papageorgiou, a member of Cyprus's parliament and a former central bank board member said.
"In terms of regulation we were not prepared for such a credit bubble," he told Reuters.
Banks' loan books expanded almost 32 percent in 2008 as its newly gained euro zone status made Cyprus a more attractive destination for banking and business generally, but Cypriot banks maintained the unusual position of funding almost all their lending from deposits.
"The banks were considered super conservative," said Alexander Apostolides an economic historian at Cyprus' European University, a private university on the outskirts of Nicosia.
When Lehman Brothers collapsed in the summer of 2008, most of the world's banks suffered in the fallout, but not Cyprus's.
"Everyone here was sitting pretty," said Fiona Mullen, a Nicosia-based economist, reflecting on the fact Cypriot banks did not depend on capital markets for funding and did not invest in complex financial products that felled other institutions.
Marios Mavrides, a finance lecturer and government politician, says his warnings about the detrimental impact on the economy of so much extra lending fell on deaf ears.
"I was talking about the (property) bubble but nobody wanted to listen, because everyone was making money," he said.[My bolding].
The fact that the main Cyprus property taxes are payable on sale made people hold onto property, further fuelling prices, Papageorgiou added.
A separate source with direct knowledge of the central bank's board said supervision was inhibited by outdated regulations that largely date back to the 1960s.
Michael Olympios, chairman of the Cyprus Investor Association that represents 27,000 individual stock market investors, said he too criticized the central bank for "lax" regulation that facilitated excessive risk taking.
That's an excellent article. I am revising my views.
The Euro made a bad situation worse by taking what was already the world's second most privately indebted country and allowing the banks to shovel even more loans into the local economy.
By last year, there was a c. EUR12-13bn hole in the banks balance sheets, and it looked like - with the help of the national government and the loans from the Russians - that the banks might pull through.
However, the haircut to Greek debt was what pushed them over the edge - from 'might possibly survive, to doomed.'
Laiki was a classic bank disaster: problems cause run, cause rising funding costs, cause greater run... cause bankruptcy... Not really very different from Northern Rock or the Icelandics.
And (don't tell SeanT I said this), but I completely agree that the Eurozone bungled this. The proposal for a haircut on all deposits, irrespective of whether they were at solvent or insolvent firms, was clearly bonkers; as was the proposal to ignore the deposit guarantee limit; and I still don't understand how they can have thought that exempting senior bond holders from the pain was a acceptable.
You can take two view - conspiracy or cock-up. I go for the latter, especially re the bonds. Laiki only had EUR100m in senior bonds outstanding, so it seemed like a rounding error. However, to many looking in, it looked like the Eurozone was trying to bail out their banks who had lent money to Laiki.
Socrates, I've made you a very generous offer, based on your own choice of words. Take it or leave it.
My choice of words did not include quotation marks. Thus I was describing the message rather than an exact quote.
The fact that you're objecting to my second list shows that you're trying to bet on word bingo rather than what the actual situation is. We can either go for the general message of it being a big deal, as adjudicated by Mike or Peter the Punter, or, if you want to go down the specific word route, use my list. If the deal is going to be powers that amount to "nothing" they won't use any of those terms, will they? Either you have nothing to worry about, or you are deliberately trying to be difficult to avoid betting.
I understand Bersani has now exhausted the time allocated to him by as plurality winner to form a government and that the baton now passes to Berlusconi who is also not expected to be able to form a government. The general expectation is that no government will be formed and that a new election will need to be called.
This is causing nervousness in the sovereign markets as demand for Italy's bond issues falls and yields rise:
Italy sold long-term sovereign debt on Wednesday with relatively soft demand and costs rising to a six-month high on the five-year paper.
The Italian Treasury opted to sell €6.91bn compared to its €5bn-€7bn target.
Some €3.91bn in five-year bonds were sold and the yield rose from 3.59% to 3.65%, its highest level since October of 2012. Demand as revealed by the bid-cover ratio dropped to 1.22 from a prior 1.61.
A fair report should mention that Italy did manage to sell its ten year bonds at lower yields albeit with falling demand.
These are the first signs of growing panic in the markets.
Andrea, is this assessment of the post-election deadlock shared in Italy? Are you in for another election within months?
You can take two view - conspiracy or cock-up. I go for the latter, especially re the bonds. Laiki only had EUR100m in senior bonds outstanding, so it seemed like a rounding error. However, to many looking in, it looked like the Eurozone was trying to bail out their banks who had lent money to Laiki.
The reports from the Troika negotiations on the first bailin proposals (6.75% on deposits Light regulation and taxes, cultural ties through Orthodox Christianity, and the Mediterranean weather have long attracted the capital and savings of Russians, many keen to keep their wealth out of the sight of often predatory bureaucrats at home.
The article goes on to show how embedded the Russians are:
Russians are believed to account for most of the 19 billion euros ($25 billion) of non-EU, non-bank money held in Cypriot banks at the last count by the central bank in January, when total non-bank deposits were 70 billion, 60 percent of them classified as "domestic". Of 38 billion in deposits from banks, 13 billion came from outside the European Union.
But the ease with which Russians can establish residency and local corporations in Cyprus muddies the data. One senior financial source in Moscow said a total of 20 billion euros held by Russian firms in Cyprus was a "significant underestimate."
Cypriot central bank chief Panicos Demetriades was asked by Russia's Vedomosti newspaper this week how much money Russians held on the island. He replied, "It depends how you count it."
The Oligarchs built massive and vulgar villas in Marbella or bought chateaux in France or English country houses and Mayfair townhouses. The Cyprus villas were bought and built by Russia's small entrepreneurs - software developers, retail traders, 'consultancy' firms etc.
In an interview on Sky, a Russian expat who ran an estate agency in Cyprus, seemed to accept the haircut stoically, saying she would stay in Cyprus and that her losses would be nowhere near the "millions" she lost in the 1998 Russian bank crisis. She seemed absolutely typical of the Russian investor in Cyrprus: not just a depositor, but part-time resident and business owner on the island.
Another article in Moscow Times explained why repatriating the offshore business and deposits to Russia may be the lesser of the options:
Cyprus has developed all relevant financial services at reasonable prices. The presence of English law is crucial, but its application is even more important. In Moscow, a group of masked "law enforcement" agents may storm into your office and ask your staff to lie down flat on the floor, taking whatever they desire. That is no way of running a modern country. Until Russia reforms and controls its "law enforcement," Moscow cannot become a financial center.
Cyprus's President erred because he misunderstood the Russians and thought they needed appeasing. They didn't. Russians are used to tough and discriminatory interventions by the powerful. All Cyprus needed to do was be less cruel and despotic than its investors host nation. And that is not a difficult task.
Using my Heath Robinson spreadsheet, I predict ahem ahem...
South Shields
Labour 48% UKIP 33% Con 6% BNP 2% LD 2%
others 9%
If you are remotely correct above in assessing UKIP's likely level of support as being 33% then Paddy Power's offer of 1.83 (5/6) on them winning >18% looks terrific value.
One possible further factor in UKIP's favour is that Labour may be punished by the South Shields' electorate feeling that they have been abandoned by their MP who is moving on to pastures new and who perhaps has spent rather too much time for their liking on the lecture circuit, etc since the 2012 general Election.
Your figure of 9% for "others" looks too high also, which if I'm right gives UKIP further scope to increase their share of the vote.
Dunno what the upper limit might be but only likely to get it if there's polling that shows that level of potential support beforehand otherwise the people who might make up that percentage will assume Labour will win easy and not bother.
If no government is formed after the last Italian election, does everyone get scored a loser in the pb annual competition, or does it get rolled over to the next election like the National Lottery?
There are few things more amusing than PB tories spouting off about independence considering their 'near perfect' record in failing to spot even just how incompetent their own party has been or how toxic the tories are and will continue to be in scotland.
Just to be clear, PB tories aren't the target audience for independence arguments. When you finally realise that obvious fact it may stop you from your constant befuddlement.
Comments
http://www.dailymail.co.uk/news/article-43179/Woman-carrying-bomb-killed-Athens-blast.html
Your stress tests do indeed show EUR2.3bn of losses on Greek debt at Laiki, and EUR110m at Bank of Cyprus. (The latter seems to be too low.)
I wonder if the EUR900m I was quoting was realised losses, rather than total. Or whether it just referred to losses in 2012.
Nevertheless, however you cut it you still can't come up with more than a quarter of the hole in the balance sheets (at absolute maximum) that is due to the Greek haircut.
"Berlin has enlisted the help of Otto Rehhagel, a much-loved football coach among the Greeks, to make Germany popular again in crisis-hit Greece. "
http://www.bbc.co.uk/news/world-europe-21947619
@RadioTimes: Rory Bremner to satirise Scottish politics in one-off comedy special http://www.radiotimes.com/news/2013-03-27/rory-bremner-to-satirise-scottish-politics-in-one-off-comedy-special
Are they sending Sven to carry the fight to Farage's growing kipper army?
I think you are right that the Cypriot Banks weren't sunk immediately by losses on Greek sovereigns, but they were holed below the line, making their failure inevitable without substantial recap.
It was the other problems on the balance sheets that caused the Troika to force the closure of Laiki (to whom the ECB had lent EUR 9 bn in liquidity finance) and to insist on the depositor bailin.
This section from the Reuters article is relevant to the thread discussion:
Before joining the euro, the Central Bank of Cyprus only allowed banks to use up to 30 percent of their foreign deposits to support local lending, a measure designed to prevent sizeable deposits from Greeks and Russians fuelling a bubble.
When Cyprus joined the single European currency, Greek and other euro area deposits were reclassified as domestic, leading to billions more local lending, Pambos Papageorgiou, a member of Cyprus's parliament and a former central bank board member said.
"In terms of regulation we were not prepared for such a credit bubble," he told Reuters.
Banks' loan books expanded almost 32 percent in 2008 as its newly gained euro zone status made Cyprus a more attractive destination for banking and business generally, but Cypriot banks maintained the unusual position of funding almost all their lending from deposits.
"The banks were considered super conservative," said Alexander Apostolides an economic historian at Cyprus' European University, a private university on the outskirts of Nicosia.
When Lehman Brothers collapsed in the summer of 2008, most of the world's banks suffered in the fallout, but not Cyprus's.
"Everyone here was sitting pretty," said Fiona Mullen, a Nicosia-based economist, reflecting on the fact Cypriot banks did not depend on capital markets for funding and did not invest in complex financial products that felled other institutions.
Marios Mavrides, a finance lecturer and government politician, says his warnings about the detrimental impact on the economy of so much extra lending fell on deaf ears.
"I was talking about the (property) bubble but nobody wanted to listen, because everyone was making money," he said.[My bolding].
The fact that the main Cyprus property taxes are payable on sale made people hold onto property, further fuelling prices, Papageorgiou added.
A separate source with direct knowledge of the central bank's board said supervision was inhibited by outdated regulations that largely date back to the 1960s.
Michael Olympios, chairman of the Cyprus Investor Association that represents 27,000 individual stock market investors, said he too criticized the central bank for "lax" regulation that facilitated excessive risk taking.
That's an excellent article. I am revising my views.
The Euro made a bad situation worse by taking what was already the world's second most privately indebted country and allowing the banks to shovel even more loans into the local economy.
By last year, there was a c. EUR12-13bn hole in the banks balance sheets, and it looked like - with the help of the national government and the loans from the Russians - that the banks might pull through.
However, the haircut to Greek debt was what pushed them over the edge - from 'might possibly survive, to doomed.'
Laiki was a classic bank disaster: problems cause run, cause rising funding costs, cause greater run... cause bankruptcy... Not really very different from Northern Rock or the Icelandics.
And (don't tell SeanT I said this), but I completely agree that the Eurozone bungled this. The proposal for a haircut on all deposits, irrespective of whether they were at solvent or insolvent firms, was clearly bonkers; as was the proposal to ignore the deposit guarantee limit; and I still don't understand how they can have thought that exempting senior bond holders from the pain was a acceptable.
You can take two view - conspiracy or cock-up. I go for the latter, especially re the bonds. Laiki only had EUR100m in senior bonds outstanding, so it seemed like a rounding error. However, to many looking in, it looked like the Eurozone was trying to bail out their banks who had lent money to Laiki.
The fact that you're objecting to my second list shows that you're trying to bet on word bingo rather than what the actual situation is. We can either go for the general message of it being a big deal, as adjudicated by Mike or Peter the Punter, or, if you want to go down the specific word route, use my list. If the deal is going to be powers that amount to "nothing" they won't use any of those terms, will they? Either you have nothing to worry about, or you are deliberately trying to be difficult to avoid betting.
I understand Bersani has now exhausted the time allocated to him by as plurality winner to form a government and that the baton now passes to Berlusconi who is also not expected to be able to form a government. The general expectation is that no government will be formed and that a new election will need to be called.
This is causing nervousness in the sovereign markets as demand for Italy's bond issues falls and yields rise:
Italy sold long-term sovereign debt on Wednesday with relatively soft demand and costs rising to a six-month high on the five-year paper.
The Italian Treasury opted to sell €6.91bn compared to its €5bn-€7bn target.
Some €3.91bn in five-year bonds were sold and the yield rose from 3.59% to 3.65%, its highest level since October of 2012. Demand as revealed by the bid-cover ratio dropped to 1.22 from a prior 1.61.
A fair report should mention that Italy did manage to sell its ten year bonds at lower yields albeit with falling demand.
These are the first signs of growing panic in the markets.
Andrea, is this assessment of the post-election deadlock shared in Italy? Are you in for another election within months?
Another election looks very likely in Italy. And Berlusconi is now ahead of Bersani in the polls, so we could see things swap round again.
That said, with the 5* movement saying they won't do deals with anybody, it's not entirely clear how any government can take power.
The article goes on to show how embedded the Russians are:
Russians are believed to account for most of the 19 billion euros ($25 billion) of non-EU, non-bank money held in Cypriot banks at the last count by the central bank in January, when total non-bank deposits were 70 billion, 60 percent of them classified as "domestic". Of 38 billion in deposits from banks, 13 billion came from outside the European Union.
But the ease with which Russians can establish residency and local corporations in Cyprus muddies the data. One senior financial source in Moscow said a total of 20 billion euros held by Russian firms in Cyprus was a "significant underestimate."
Cypriot central bank chief Panicos Demetriades was asked by Russia's Vedomosti newspaper this week how much money Russians held on the island. He replied, "It depends how you count it."
The Oligarchs built massive and vulgar villas in Marbella or bought chateaux in France or English country houses and Mayfair townhouses. The Cyprus villas were bought and built by Russia's small entrepreneurs - software developers, retail traders, 'consultancy' firms etc.
In an interview on Sky, a Russian expat who ran an estate agency in Cyprus, seemed to accept the haircut stoically, saying she would stay in Cyprus and that her losses would be nowhere near the "millions" she lost in the 1998 Russian bank crisis. She seemed absolutely typical of the Russian investor in Cyrprus: not just a depositor, but part-time resident and business owner on the island.
Another article in Moscow Times explained why repatriating the offshore business and deposits to Russia may be the lesser of the options:
Cyprus has developed all relevant financial services at reasonable prices. The presence of English law is crucial, but its application is even more important. In Moscow, a group of masked "law enforcement" agents may storm into your office and ask your staff to lie down flat on the floor, taking whatever they desire. That is no way of running a modern country. Until Russia reforms and controls its "law enforcement," Moscow cannot become a financial center.
Cyprus's President erred because he misunderstood the Russians and thought they needed appeasing. They didn't. Russians are used to tough and discriminatory interventions by the powerful. All Cyprus needed to do was be less cruel and despotic than its investors host nation. And that is not a difficult task.
Just to be clear, PB tories aren't the target audience for independence arguments. When you finally realise that obvious fact it may stop you from your constant befuddlement.