Good morning New York,
FT ALPHAVILLE - CYPRUS EDITION
The announcement, the analysis. Joseph presents Cyprus bailout's "upfront one-off stability levy" for depositors in Cypriot banks. It is a levy of 9.9 per cent on deposits above €100k, but also of 6.7 per cent on those holding amounts below €100k down to zero. The move by the Eurogroup will also hit resident and nonresident depositors alike, and depositors will get shares in the banks after being levied. Head over to Joseph's post for the arguments for the levy (note that he is partly playing devil's advocate here), followed by some background on the whole situation, including the role of emergency liquidity assistance and the great escape of sovereign bondholders.
The fallout: Cyprus edition. David has the initial market reaction in Europe on Monday morning. While major indices are down, the euro is pretty flat at $1.2942 and we still need America to walk in and pass judgement on whether Cyprus is really really small or this decision is really really bad.
Lessons for peripherals: There is a disconnect between the message Germany and other northern European countries thought the Cypriot bailout would send, and what was actually likely received. One message from the core: small country blackmail on contagion can be resisted. What the periphery understands: watch out for holidays and weekends, and deposit insurance is not sacred. Cardiff covers this and more from Citi's FX guru Steven Englander.
Beyond financial repression. 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. Ordinary people, it seemed, could be financially repressed without realising they were in fact the victims. There was no discussion back then of outright expropriation or a "tax", as insured (and uninsured) depositors at Cypriot banks are now being forced to bear, writes Paul.
The stupid idea, and the system. While it might be too early to tell, it is hard to see the fear flowing from Cyprus to the average depositor in a Spanish or Italian bank. Not in the short term. As for Lehman II, well, come off it. After all, that's probably partly why this inequitable tax on small depositors across Cypriot banks could be put on the Eurogroup negotiating table on Friday. The systemic danger is absent. The problem of Cyprus was that some depositor bail-in had eventually become unavoidable: the chart via Barclays below helps show the scale of this problem. It is the injustice of how it is being meted out. Joseph goes over some of the wider implications, and puts it in the context of other European bail-ins.
The Cyprus depositor pain-distribution ratio. The "stability levy"/"bail-in" for depositors in Cypriot banks might not come to pass in quite its original, burning-everyone-almost-equally form, thanks to the small matter of democratic politics. But let's go with what we've got so far: the under-€100k deposits will be taxed 6.75 per cent, and over-€100k will lose 9.9 per cent. Antonio Garcia Pascual and Laurent Fransolet at Barclays have taken a stab at estimating how much of Cyprus's total deposit base falls into the €100,000-plus category. Head over to Kate's post to crunch the numbers.
NEWS
Cypriot authorities attempt to revise deposit levy deal: Cyprus' embattled president was on Sunday in talks with Brussels and political rivals to ease the terms of a planned levy on smaller deposit holders as he tried to scrape together a parliamentary majority for a €10bn bailout for the debt-laden island. President Nicos Anastasiades is still intending to raise €5.8bn from Cypriot bank accounts to help fund the bailout, but alternatives are being discussed to the deal struck on Friday, which would levy a 6.75% tax on all accounts under €100,000, and 6.75% on smaller deposits. Officials involved in Sunday night's talks said the levy on larger accounts could rise to as much as 12.5% and the smaller levy could fall to 3.5%. The country's 56-member parliament is scheduled to vote on the measure this afternoon, and success is far from assured. The government controls 28 of 56 seats. Anastasiades made a dramatic address to the nation calling for political backing of the €5.8bn levy and warning that the country faces a painful default without the €10bn tied to the levy. (Financial Times) (Reuters) (Wall Street Journal)
Osborne to concede another debt target delay in Budget: "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 Decemberand is now preparing to concede another delay to 2017-18." (Financial Times)
Paris house prices sputter: "Paris home prices, which have risen 37 percent since 2009, are set to end their upward streak as French President Francois Hollande cuts property subsidies and raises taxes." (Reuters)
HSBC is gearing up to cut thousands more jobs. The bank is set to outline the next stage in its strategic overhaul at an investor day in two months' time. "There is no fantastical new strategy out there," said one person familiar with the bank's planning. "But there's still huge potential to be more efficient." (Financial Times)
Insurers dodge bank-style capital surcharges: "The International Association of Insurance Supervisors will make its decision public when it unveils plans to deal with "systemically important insurers" on Wednesday, three people familiar with the plans told the Financial Times." (Financial Times)
European parliament wants to restrict bonuses that exceed salaries for Ucits fund managers. "The parliament's draft negotiating position, seen by the Financial Times, would enforce a maximum 1:1 ratio of bonus to salary and requires up to 60 per cent of the variable element to be deferred and largely paid in units of the fund the manager runs." (Financial Times)
Sweden laments crazy devaluations: "It's good for companies that they need to understand that they have to compete with real tools rather than the imaginary tool that the exchange rate is," Financial Markets Minister Peter Norman said in a March 15 interview." (Bloomberg)
Former PBoC chairman to be Chinese securities regulator: "Mr Xiao, who also worked at the central bank for 15 years, has had a lower profile than Mr Guo, raising questions about whether he will be as forceful in trying to bring change to China's markets." Meanwhile PBoC governor Zhou Xiaochuan will remain in his role despite reaching the retirement age of 65. (Financial Times)
WSJ China bribery allegations: "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." (Wall Street Journal)
Markets: A resurgence of eurozone tensions is providing the trigger for a sharp pullback in global stocks from multiyear highs. The sight of small savers taking a hit as part of a Cypriot bailout has raised fears about the safety of eurozone bank deposits, forcing the euro lower, smacking growth-focused assets and pushing funds into perceived safety, such as Treasuries and Bunds. US index futures suggest Wall Street's S&P 500 will retreat 20 points from its near five-year highs when the starting bell rings later in the session. writes the FT's Global Markets vampire Jamie Chisholm.
