Cyprus bailout cost jumps

CYPRUS has confirmed the cost of its EU-IMF bailout has surged to 23 billion euros ($A28.7 billion) from 17.5 billion euros, putting the already teetering economy in danger of collapse and further endangering large bank depositors.

"It's a fact the memorandum of November talked about 17.5 billion (euros) in financing needs. And it has emerged this figure has become 23 billion," said government spokesman Christos Stylianides.

That means Cyprus will now have to find 6.0 billion euros more than the 7.0 billion euros mooted in a preliminary agreement reached on March 25 in order to secure an EU-IMF contribution of 10 billion euros.

Under the preliminary terms of a bailout agreed last month, Cyprus will drastically reduce the size of its bloated banking sector, raise taxes, downsize the public sector workforce and privatise some state-owned firms.

Stylianides was commenting on a new assessment of Cyprus's financing needs that eurozone finance ministers, including that of Cyprus, are to discuss in Dublin from Friday in a bid to reach a final deal.

A source close to the talks said "the financing needs of Cyprus have evolved. Notably, while the restructuring of the financial sector will now be very largely financed through private means, the projected fiscal needs of the state have increased as a result of the deeper-than-expected recession."

A copy of the assessment obtained by AFP says the European Commission and European Central Bank now estimate that "Cyprus's gross financing needs amount to about (23 billion euros) over the three-year program horizon" through the first quarter of 2016.

"This includes needs for the recapitalisation of the banking sector, the redemption of maturing medium- and long-term debt, including loans and fiscal needs."

Under the March deal, failed lender Laiki Bank is being wound up and its healthy assets transferred to the Bank of Cyprus.

To cover part of Cyprus's revenue-raising needs, there was talk that customers with deposits of more than 100,000 euros at Bank of Cyprus could lose up to 60 per cent of those holdings. That figure could now be even higher.

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Cyprus leader defends bailout

A Cypriot woman protests against an EU bailout deal outside the parliament in Nicosia this week. Source: The Australian

PRESIDENT Nicos Anastasiades says a bailout he secured from international creditors had saved Cyprus from collapse but world markets took fright because it might become a model for other larger economies.

The agreement he struck averts a chaotic eurozone exit for the island and allows a partial reopening of bank branches from today after a 10-day shutdown imposed to avoid a run on accounts while the talks dragged on.

But it comes at the expense of job losses in the key financial sector and a massive drying up of credit that threatens a protracted recession.

After a brief rally, world stock markets and the euro nosedived as the severity of the model that had been set for future bailouts of other larger indebted eurozone economies became clear.

The agreement struck with the European Union and the International Monetary Fund deals a major hit to investors and depositors in the island's biggest bank, the Bank of Cyprus, many of whom are Russian, and will also effectively shut down Laiki, its second-largest lender.

Laiki is to be wound up, with what is saved being merged with Bank of Cyprus whose larger depositors will face a "haircut" of 30 per cent, government spokesman Christos Stylianides said.

The European Central Bank announced that in light of the deal it would continue its emergency funding of the two banks which it had threatened to cut off from yesterday. Their merger is likely to lead to major job losses in a sector that had been one of the few growth areas in the island's economy and a drying up of credit to consumers and small businesses.

But wealthy eurozone governments like France and Germany had refused to bail out Cyprus unless it agreed to put an end to what they regarded as a "casino" financial sector dependent on hot money from countries like Russia.

Mr Anastasiades said overnight there had been "no easy solutions" in the marathon talks with international creditors that climaxed in the early hours and expressed confidence that Cyprus would "find its feet again".

He promised the banking system would stabilise and that the merger of what was left of the two main lenders would ensure a "strong and capable bank is created to serve the needs of depositors and the national economy".

"The agreement reached is a painful one but under the circumstances the best we could secure ... Cyprus was a breath away from economic collapse," the conservative president said.

The deal spares all depositors with less than 100,000 Euros ($124,899) in the island's banks, a key condition missing from a previous agreement the Cypriot parliament rejected last week.

But Cyprus could now be in for a "deep recession caused by the shrinkage of the banking sector and severe deleveraging", or paying down of debt, UBS economist Reinhard Cluse said.

Economists have forecast the Cyprus economy could now contract by at least 10 per cent this year and by 8.0 per cent in 2014. Banks on the island will reopen today except for the two big lenders, which will keep their doors closed until Thursday.

"Some restrictive measures on financial transactions" will remain in force, Mr Anastasiades said, stressing that it was a "very temporary measure".

In the face of public outrage over the devastation of the island's prized banking sector, together with huge losses in savings and jobs, he vowed to open a criminal investigation into the crisis.

"I undertake in the next few days for the cabinet to appoint criminal investigators with a clear term of reference to find and attribute responsibility wherever it belongs," Mr Anastasiades said.

The conservative president said he shared the "bitterness and disappointment" felt by many on the island at the attitude of  "some of our respected partners" in the eurozone but insisted that quitting the single currency was not the answer.

German Chancellor Angela Merkel, whose government took a hard line in the talks, said the deal represented a "fair distribution" of the burden and "also requires those who have contributed to causing these undesirable developments to take responsibility".

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Cyprus leader defends bailout

A Cypriot woman protests against an EU bailout deal outside the parliament in Nicosia this week. Source: The Australian

PRESIDENT Nicos Anastasiades says a bailout he secured from international creditors had saved Cyprus from collapse but world markets took fright because it might become a model for other larger economies.

The agreement he struck averts a chaotic eurozone exit for the island and allows a partial reopening of bank branches from today after a 10-day shutdown imposed to avoid a run on accounts while the talks dragged on.

But it comes at the expense of job losses in the key financial sector and a massive drying up of credit that threatens a protracted recession.

After a brief rally, world stock markets and the euro nosedived as the severity of the model that had been set for future bailouts of other larger indebted eurozone economies became clear.

The agreement struck with the European Union and the International Monetary Fund deals a major hit to investors and depositors in the island's biggest bank, the Bank of Cyprus, many of whom are Russian, and will also effectively shut down Laiki, its second-largest lender.

Laiki is to be wound up, with what is saved being merged with Bank of Cyprus whose larger depositors will face a "haircut" of 30 per cent, government spokesman Christos Stylianides said.

The European Central Bank announced that in light of the deal it would continue its emergency funding of the two banks which it had threatened to cut off from yesterday. Their merger is likely to lead to major job losses in a sector that had been one of the few growth areas in the island's economy and a drying up of credit to consumers and small businesses.

But wealthy eurozone governments like France and Germany had refused to bail out Cyprus unless it agreed to put an end to what they regarded as a "casino" financial sector dependent on hot money from countries like Russia.

Mr Anastasiades said overnight there had been "no easy solutions" in the marathon talks with international creditors that climaxed in the early hours and expressed confidence that Cyprus would "find its feet again".

He promised the banking system would stabilise and that the merger of what was left of the two main lenders would ensure a "strong and capable bank is created to serve the needs of depositors and the national economy".

"The agreement reached is a painful one but under the circumstances the best we could secure ... Cyprus was a breath away from economic collapse," the conservative president said.

The deal spares all depositors with less than 100,000 Euros ($124,899) in the island's banks, a key condition missing from a previous agreement the Cypriot parliament rejected last week.

But Cyprus could now be in for a "deep recession caused by the shrinkage of the banking sector and severe deleveraging", or paying down of debt, UBS economist Reinhard Cluse said.

Economists have forecast the Cyprus economy could now contract by at least 10 per cent this year and by 8.0 per cent in 2014. Banks on the island will reopen today except for the two big lenders, which will keep their doors closed until Thursday.

"Some restrictive measures on financial transactions" will remain in force, Mr Anastasiades said, stressing that it was a "very temporary measure".

In the face of public outrage over the devastation of the island's prized banking sector, together with huge losses in savings and jobs, he vowed to open a criminal investigation into the crisis.

"I undertake in the next few days for the cabinet to appoint criminal investigators with a clear term of reference to find and attribute responsibility wherever it belongs," Mr Anastasiades said.

The conservative president said he shared the "bitterness and disappointment" felt by many on the island at the attitude of  "some of our respected partners" in the eurozone but insisted that quitting the single currency was not the answer.

German Chancellor Angela Merkel, whose government took a hard line in the talks, said the deal represented a "fair distribution" of the burden and "also requires those who have contributed to causing these undesirable developments to take responsibility".

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US stocks fall on Cyprus bailout worries

US stocks have fallen for a second straight day as the Cyprus banking crisis sent jitters through markets.

The huge tax on bank depositors included in the weekend EU-IMF bailout plan for Cyprus sent stocks sinking from the opening bell as outrage spread across the Mediterranean island country and spurred fears of similar penalties elsewhere in the eurozone.

The Dow Jones Industrial Average finished down 62.05 points (0.43 per cent) at 14,452.06 today.

The broad-based S&P 500 dropped 8.60 (0.55 per cent) to 1552.10, while the tech-rich Nasdaq Composite lost 11.48 (0.35 per cent) to 3237.59.

The Cyprus controversy hit a market already on edge for a correction after the strong record-bursting run-up since the beginning of March, and also cautious ahead of the two-day Federal Reserve policy board meeting that begins tomorrow.

"It scares investors in Cyprus, it scares investors in Europe and Asia, and in the US," said Hugh Johnson of Hugh Johnson Advisors.

"We learned from past financial crises, for instance the Southeast Asia financial crisis that started in a small country like Thailand back in the '90s, that a crisis starting in a small country like Cyprus can spread all over."

Apple added another 2.7 per cent amid continuing speculation that it could release some of its massive financial war chest back to investors in the form of a dividend or share buyback.

Constellation Brands gained 3.0 per cent amid signs from the Justice Department that a deal could be nigh to approve the proposed Anheuser-Busch Inbev-Grupo Modelo merger, blocked for the moment by a federal antitrust suit.

Constellation stands to benefit by picking up distribution units from Modelo in the deal.

AB Inbev was up 0.2 per cent.

The Netherlands's NXP Semiconductor fell 4.8 per cent amid reports it had lost a contract to supply chips for the new Galaxy S4 smartphone.

Cable operator Charter Communications shot up 8.7 per cent following reports that Liberty Media would buy a stake in the company.

Bond prices rose. The yield on the 10-year Treasury fell to 1.96 per cent from 2.00 per cent on Saturday, while the 30-year yield fell to 3.18 per cent from 3.23 per cent on Saturday. Bond prices and yields move inversely.

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Cyprus bailout plan rattles markets

Many rushed to cooperative banks on the weekend in Cyprus, after learning that the terms of a bailout deal includes a one-time levy on bank deposits. Picture: Pavlos Vrionides Source: AP

GLOBAL stocks and the euro fell sharply Monday as investors fretted over a plan to tax depositors in Cypriot banks as part of a bailout plan.

Financial stocks bore the brunt of the selling in European stock markets, with France's Societe Generale down 5 per cent and Italy's UniCredit 4 per cent lower, as investors worried about the implications of the Cyprus bailout.

Since the European debt crisis began in late 2009, savers have been spared. But the bailout of Cyprus, agreed to on Saturday, foresees the government seizing 6.75 per cent of deposits below 100,000 euros ($125,000), rising up to 9.9 per cent on those above 100,000 euros. That signals a huge policy shift for the embattled eurozone.

Now investors are worried that savers will start taking their money out of banks across Europe - just like Cyprus residents did on a weekend ATM bank run.

"If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job," said Michael Hewson, senior market analyst at CMC Markets.

In Europe, the FTSE 100 index of top British shares fell 0.5 per cent to 6461 while Germany's DAX was 0.9 per cent lower at 3816. The CAC-40 in France dropped 0.7 per cent to 3817. Cyprus' main index was closed for a public holiday and the country shut down the banks until Thursday so Parliament can vote on the bailout.

The euro was also suffering, down 0.7 per cent at US$1.2925 ($1.24188).

The Cypriot Parliament has to back the proposal for it to pass, and lawmakers have called it an unfair blow to small savers, since up until now deposits around the eurozone have been guaranteed up to the 100,000 euro level. The vote was postponed for a second time with the Parliament speaker saying it will now take place Tuesday.

One new proposal would make the tax more graduated: placing a one-time 3 per cent levy on deposits below 100,000 euros, rising to 15 per cent for those above 500,000 eruos.

"The bottom line is that it's very finely balanced and the success of the vote will depend on what tax breakdown goes before Parliament," said Adam Cole, an analyst at RBC Capital Markets.

If it backs the levy, then Cyprus would be eligible for a 10 billion euro ($12.5 billion) financial rescue from its partners in the eurozone and the International Monetary Fund. If it doesn't back the deal, then the country of just a million people faces bankruptcy and potentially an exit from the euro - a development that could have huge ramifications in global financial markets.

German finance minister Wolfgang Schaeuble said a "no" vote by Cypriot lawmakers would devastate the country.

"Then the Cypriot banks will no longer be solvent, and Cyprus will be in a very difficult situation," said Schaeuble.

Cyprus' banking sector is about eight times the size of the economy and has been accused of being a hub for money-laundering, particularly from Russia. That's why many European officials wanted to have the banks' depositors involved in the cost of the bailout.

The uncertainty over Cyprus weighed on sentiment around the world, though the selling pressure was eased through the US trading session.

In the US, the Dow Jones industrial average was 0.2 per cent lower at 14,477 while the broader S&P 500 index fell 0.5 per cent to 1553.

Earlier in Asia, Japan's Nikkei 225 index slid 2.7 per cent to 12,220.63, while Hong Kong's Hang Seng dropped 2 per cent to 22,082.83.

Oil prices trimmed their earlier losses, with the benchmark New York rate 25 cents lower at US$93.20 ($89.57) a barrel.

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Stocks, euro slide on Cyprus bailout terms

EUROPE'S main stock markets lost ground and the euro fell under $1.30 on Monday on news that Cyprus might tax bank deposits as part of a controversial international bailout.

Asian equities fell heavily as the mooted plan by Cyprus to tax bank deposits raised fresh concerns the eurozone debt crisis could flare up again.

But after being down more than a percentage point in early trade, European exchanges gradually clawed their way back during the afternoon as the initial shock passed, with London's FTSE 100 index of leading companies closing down 0.49 per cent at 6457.92 points.

In Frankfurt, the DAX 30 dropped 0.40 per cent to 8010.7 points, while in Paris the CAC 40 shed 0.48 per cent to 3825.47 points.

Elsewhere, Madrid's IBEX 35 shares index fell 1.29 per cent and Milan's FTSE MIB sank 0.85 per cent in value.

In midday trade in the US, the Dow Jones Industrial Average gave up 0.08 per cent to 14,501.94 points, the broad-based S&P 500, which last week appeared poised to break its all time record, declined 0.30 per cent to 1556.04 points and tech-rich Nasdaq Composite Index lost 0.20 per cent to 3242.63.

In foreign exchange activity, the European single currency plunged at one point to $US1.2882 in Asian deals to the lowest point since December 10, 2012.

"Euro weakness has unsurprisingly been the central story today, with the single currency slipping the most in 14 months," said Nick Dale-Lace at CMC Markets brokerage.

The euro later stood at $US1.2977, down from $US1.3075 on Saturday in New York.

Gold prices meanwhile rose to $1603.75 an ounce on the London Bullion Market from $US1595.50 on Saturday.

"After suffering sharp early losses in the face of eurozone plans to pick pocket the citizens of Cyprus, European indices reclaimed much of the lost ground in afternoon trade, as investors took the view that a European banking run was unlikely in the short term," said Nick Dale-Lace at CMC Markets brokerage.

Terms for a desperately-needed 10-billion-euro ($12.62 billion) bailout for Cyprus include a proposed levy on all deposits in the island's banks.

Deposits of more than 100,000 euros would be hit with a 9.9 per cent charge, and 6.75 per cent for anything below that threshold. The proposal must still be approved by parliament, where it seems to have run into solid opposition.

"The negative reaction in Europe's financial markets to the decision to 'bail in' depositors in Cyprus has been fairly muted so far," said Capital Economics.

Markets were primarily concerned about the potential willingness of EU leaders to replicate the Cyprus actions in other member states if they are deemed successful, according to CMC Markets.

"This is reflected in the underperformance of blue chip banking names across the continent today - particularly in Spain," said Mr Dale-Lace.

Shares in Spanish bank Santander fell by 2.33 per cent, UniCredit in Italy was down by 3.61 per cent, BNP Paribas lost 2.8 per cent in Paris and Barclays Bank was down by 4.41 per cent in London. In Germany, Deutsche Bank lost 1.88 per cent.

The European Central Bank opened the door to possible amendments to the bailout deal however, arguing it was up to the Cyprus government to ensure the necessary financing.

Cyprus is the fourth nation to fall victim to the eurozone debt crisis, which has already resulted in enormous EU/IMF bailout packages for Greece, Ireland and Portugal.

Back in June, meanwhile, Spain looked as if it too would need a rescue as the collapse of its banking system, largely down to a burst property bubble, forced the government into a corner.

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