Tuesday 26 March 2013

Capital Flight from Cyprus Continues - Despite Capital Controls

Several news sources are reporting that despite capital controls in Cyprus, numerous payments have been made over the past week.
Reuters reported yesterday that Bank of Cyprus and Cyprus Popular Bank branches or subsidiaries in the UK and Russia have not had capital controls imposed:
No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors.
The Frankfurter Allgemeine Zeitung reported on March 24th that Cypriot obligations to the ECB’s Target system doubled from their pre-crisis level of EUR 100-200 million per day, despite the capital controls on deposits.
Vor der Zuspitzung der Krise in Zypern waren die über das Zahlungsverkehrs-System „Target auflaufenden Verbindlichkeiten der zyprischen Notenbank gegenüber der Europäischen Zentralbank (EZB) täglich um etwa 100 bis 200 Millionen Euro gestiegen. In den vergangenen Tagen sei, nachdem das Parlament das Stabilisierungsprogramm zunächst hatte scheitern lassen, der tägliche Wert auf mehr als das Doppelte gestiegen. Allein in der vergangenen Woche könnten also Geldvermögen in Milliardenhöhe aus Zypern abgeflossen sein, obwohl die zyprische Notenbank eigentlich eine Sperre ausgesprochen hat.
Navigator Consulting is a Bank of Cyprus customer, and I can confirm from personal experience (and the experience of some friends) that:
  • International visa payments on items like hotel bills have been permitted in full
  • Cash withdrawals in certain countries, such as Germany, have been permitted apparently without restrictions.
ZeroHedge provides the best conclusion, with its customer candor:
The stealth withdrawals by Russians of course means that the two megabanks are now utterly drained of capital, and that the haircuts on those who still have unsecured deposits with the two banks will be so big it will likely mean a complete wipeout of all deposits. As in 0% recovery on your deposits!
In other words, by now any big Russian funds in Cyprus are long gone, and the only damage accrues to the locals: for one reason because their money over the critical EUR100K threshold has been "vaporized", and for another because the marginal driving force and loan demand creator in Cyprus, the Russians, are gone and are never coming back again.
This is what passes for monetary real-politik in the New Normal - an entire nation becomes collateral when pursuing a wealthy group of people. And the "wealthy group" is victorious in the end despite everything...
If we were Cypriots at this point we would be angry. Very, very angry

(c) Philip Ammerman, 2013 
Philip Ammerman is Managing Partner of Navigator Consulting Group and European Consulting Network
25 March 2013
24 March 2013
25 March 2013

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