Financial Times 25 Mar 2013: Small banking islands will suffer from the Cyprus bail-out

  • anrigaut
  • 19/10/08 30/10/09
  • a depositor
  • Offline
Posted: Mon, 01/04/2013 - 09:47

Returning from a welcome break, I have just seen this article which appeared in the FT Business blog on 25 March and which includes a direct link to our main (ksfiomdag.com) public site. Wonders will never cease! It begins:

"The chaos over the rescue of Cyprus – under which insured bank deposits were initially threatened but have been reprieved – has raised questions about whether depositors in other eurozone countries will feel safe.

But I wonder if the bigger long-term effect will be on offshore banking centres in general, rather than the eurozone. After all, Cyprus shows that a small financial centre that becomes overwhelmed by financial difficulties cannot stand behind a banking system several times the size of its economy.

These problems arose before in Iceland and the Isle of Man, both popular places to put money. Some British depositors in Kaupthing, Singer & Friedlander (Isle of Man), are still devastated by the loss of their savings in the 2008 financial crisis.
..."

I note that one 'TonyC236' (who I think we will all recognise) made an excellent comment which was followed by some IOM counter-spin. So I have just added my riposte. You can read all here: http://blogs.ft.com/businessblog/2013/03/small-banking-islands-will-suff...

Note that access to this blog is free, but you will need to register (also free) with FT to read it.

4.875
Your rating: None Average: 4.9 (8 votes)

Comment viewing options
Select your preferred way to display the comments and click "Save settings" to activate your changes.

What next?

  • Valentine
  • 18/10/08 31/05/14
  • a depositor
  • Offline
  • Sat, 06/04/2013 - 14:39

Thanks for that,anrigaut - very interesting.

I have been surprised that no on else has commented on the Cyprus situation, because I think it is yet another wake up call for all of us - and I don't mean just US -I mean every bank depositor in the world.

Of course there are parallels to be drawn between Cyprus and Iceland, and between Cyprus and the IOM. Same old story really - incompetent or non existent regulation, fat cats managing to get their money out, corrupt politicians, the bankers themselves getting away unscathed.... usual story.......

What is frightening to me though are two things.

1.
There are people out there who are going through the same anguish that we had in October 2008...only worse. They know that they are going to lose up to 60% of their deposits. We at least still had some hope, although it diminished later.
The media has told us that most of it is dodgy Russian money. But there are some , maybe hundreds, maybe thousands of ordinary people like us who are affected. Expats living in Cyprus who thought that putting their nest eggs in Cyprus was a sensible move. Others who somehow were inveigled into putting money there.
Come on guys - the world has shown its indifference to their plight just as they did to ours.
We were lumped together with tax dodgers and money launderers by no less a personage than the Chancellor of the effing Exchequor.
The unfortunate innocent depositors in Cyprus have been lumped together with the Russian Mafia - and no one gives a rat's arse about them.
I can understand your average Joe who still sees banks as the nice young lady behind the counter at Barclays in the High Street, and not as the rapacious bastards that WE know them to be. He turned a blind eye to us and he will turn a blind eye to all banks in trouble - until he himself is affected, of course.

2.
The other worrying thing is again an old story ... but it is slowly, inexorably getting worse.
This time the banks who got into trouble were not allowed to fail. But who were the ones who took the hit? Not the bankers themselves.... not the regulators.... not the useless politicians. It's the DEPOSITORS!!!
What sort of precedent does that set? Will all bankers be let off the hook every time they get into trouble?
We used to make jokes about keeping our money under the mattress - It's not a joke any more. Where is this going to end? aM I GOIN ROUND THE BEND?


@Valentine

  • anrigaut
  • 19/10/08 30/10/09
  • a depositor
  • Offline
  • Sat, 06/04/2013 - 18:37

Sigrun's take on the parallels between Cyprus and Iceland, and what she feels Cyprus could learn from Iceland, is well worth reading. As ever, she makes some excellent points::
http://uti.is/2013/03/truth-and-investigations-what-cyprus-can-learn-fro...

Iceland has certainly done more than any other country to throw light on what really happened and to bring the corrupt bankers and others to account and I await with interest the forthcoming trials. But given the likely degree of implication of many of its politicians, bankers, accountants and lawyers, I find it hard to imagine Cyprus doing likewise.

It would seem that Cyprus is already done for as an offshore financial centre. On a wider front, the latest revelations by the International Consortium of Investigative Journalists is seen by some as a potential game-changer:
http://taxjustice.blogspot.fr/2013/04/offshore-special-possibly-largest-...
http://www.taxresearch.org.uk/Blog/2013/04/04/the-evidence-is-clear-lawy...

We can live in hope. But if/when that happens, more innocent citizens will again suffer. To quote from one of Richard Murphy's blogs: "Having been a tax haven will prove to be a disaster for the people of Cyprus. With all other economic activity squeezed into the background by an over-expanded finance sector the ripple effect will be enormous. Sometime soon small states are going to realise that being a tax haven and putting all eggs into one highly volatile market really does not pay."
http://www.taxresearch.org.uk/Blog/2013/03/27/being-a-tax-haven-will-hav...

Isle of Man take note!


Cyprus a disaster waiting to happen

  • Afam
  • 02/02/09 28/05/13
  • a depositor
  • Offline
  • Sun, 07/04/2013 - 14:40

I do not often contribute to the website but I monitor almost daily what is happening.

I invested over £100k in KSFIoM after having to retire early, due to my wife's ill health, so in 2004 we moved to CYPRUS!
I had worked overseas for more than 30 years in Africa, the Middle East and Asia. We thought that by moving to Cyprus we would, for the first time in many years, be back in Europe, with sunshine and with all the associated security we thought that would bring - wrong!
I am in a position to observe the Cyprus situation and compare it with other countries we have lived in.

The reason for the problems in Cyprus are not complex but they are many.

The level of corruption, nepotism and inefficiency in local government is on a par with many of the 'third world' countries we have lived in or visited. Governmental departments were getting guaranteed annual pay rises and a 13th month salary bonus - with no apparent requirement to provide a service.

Property developers - at one time a major foreign currency earner, are corrupt almost without exception. You buy a house from a developer and pay the full purchase price but you do not own the house until you get the Title Deeds, ours came quite quickly - after around 7 years. The developer then ripped me off again by demanding a large amount of money before he handed them over. In the mean time many developers use your deeds as security on further bank loans. If the developer goes bankrupt, the bank has first call on your fully-paid-for home. Any hope of pursuing claims through the courts are close to zero. It is generally accepted that the lawyers are not as honest as one would expect for that profession and are often in partnership with the developers. It is not unheard of for a developer to sell the same house to two buyers - the chance of getting your money back - zero.

With regards the banking situation, even a small amount of common sense should have warned people that the banks were destined for a major melt down.

A Cypriot friend was advised by his bank manager to take out a large loan from the bank and re-invest in the same bank at a much higher interest rate!
Many people appeared blind to to fact that interest rates of between 4% - 5%, in the present financial climate, were a recipe for a major banking disaster. For that reason we only ever kept enough money in the bank for 'living expenses'.
Unfortunately, many people have been trapped by having just sold their house, either here or in the UK and the money is sitting in a Cyprus bank account and is now unreachable.

We spent over 6 years living in Nigeria. However, when you were being ripped-off in Nigeria by - government officials, police or just the guy in the street, you could understand to a certain extent that it was driven by poverty and desperation. In Cyprus the corruption is driven by greed.

In the 2012 'Transparency International' report on corruption, Cyprus was in the top 30 corrupt countries (number 29) out of 176 countries surveyed.

Local news papers have recently been running with the story of the prosecution in India of the former Indian Telecommunications Minister, He is alleged to have received some €479m in bribes to favour particular telecom companies. A large proportion of the bribes were alleged to have been sent abroad for him via Cyprus, using a network of 22 Cyprus-registered dummy companies, all registered at the same Cyprus address.

Quote from the NY Times (March 31st 2013) "Particularly successful at luring Russians, Cyprus has built up a large infrastructure of lawyers, accountants and other professionals schooled in the arts of tax avoidance. Its corporate registry now has 320,000 registered companies, a staggering number for a country with only 860,000 people. Most are shells set up for foreign companies and wealthy individuals seeking to avoid taxes." Unquote.

Money laundering in Cyprus has been going on since the 1980's but few, if any, are brought to justice.

Successive Cyprus governments have been warned about their unsustainable banking model and money laundering. The EU decided that the only way to teach Cyprus a lesson was to use the big stick. Unfortunately, the stick is unable to distinguish between the innocents and the corrupt abusers of the banking system. Although investors with less than 100k Euros in their account will not be 'taxed', we cannot get access to our money.

'Investigations' are presently ongoing into politicians and government officials who took loans from the Bank of Cyprus and Cyprus Popular Bank (Laiki) and had them written-off after having paid back only a small part of it - in the best case. Also being investigated are politicians, officials and their families who managed to move millions out of the banks 'just' before the restrictions were implemented. What does the average Cypriot and expatriate expect from these investigations - nothing as usual.
In the mean time I queue at the ATM to withdraw my 300 Euro per day limit.

After the above rant I feel 'purged'. Many thanks to the contributors to the forum, who over the years have kept up my spirits. From those dark days of having to deal with the potential loss of a large amount of my hard earned savings and coming to terms with the fact that my wife had incurable cancer. But, our money is coming back, slowly, and my wife is still with me - I consider myself very lucky.
Be Safe, Be Healthy, Be Happy and Confusion to our enemies
AFAM


To AFAM & Anrigaut

  • Gordon 45
  • 22/10/08 n/a (free)
  • a depositor
  • Offline
  • Mon, 08/04/2013 - 20:41

AFAM,

Can I add my thanks for this insight into the tragedy taking place in Cyprus. Another dreadful situation, and they seem to go on and on. Fortunately our tragedy is heading towards the end, with as good a result as we could have ever hoped for. Although for some they did not get to see this far, and others have incurred really bad health issues since 2008.

Can I also add my thanks once more to Anrigaut for her constant updates along with Glen07 on the Icelandic situation. Again most helpful, to me anyway, as I strive to do my bit along with many others.

Take care,

Gordon 45


Many thanks AFAM for that

  • anrigaut
  • 19/10/08 30/10/09
  • a depositor
  • Offline
  • Mon, 08/04/2013 - 07:02

Many thanks AFAM for that clear and lucid account of the Cyprus situation as seen at close quarters. It confirms what I have gathered from various sources and referred to obliquely in my comment.

Thank goodness that you at least - maybe more aware than some in the light of your experiences with KSFIOM - took care to keep your funds in Cyprus to a minimum. One would hope that most Cypriot residents would have been awake enough to have seen the imminent danger and kept their deposits in any one bank below the compensation limits. After all that has happened since 2008, it's hard to imagine they could have been unaware, but I fear many may have had their heads in the sand.

The EU has been much criticised, especially in the UK media. But I don't see what else they could have done. Without the (partial) bail-out (or bail-in), these insolvent banks would simply have failed, with no doubt even bigger losses for the smaller savers and no guarantee that the full compensation could have been paid. Needless to say, I have no sympathy with the money-launderers and tax evaders!

All the best to you and your wife. Keep smiling!

Update: As Sigrun aptly says in her latest blog: "... This is not to say the troika is blameless but the troika is only called – like the fire brigade – when the fire rages and all other solutions fail. The fire brigade may choose the wrong strategy but it would not be there if it weren’t for the fire."
http://uti.is/2013/04/economics-vs-politics-and-the-futile-search-for-ba...