Barabashev & partners

On March 25th 2013, the EUROGROUP has reached a decision that was imposed on the Cyprus Government for the alleged "Bail-out" of the Cyprus economy.

Date: 27-03-2013
On March 25th 2013, the EUROGROUP has reached a decision that was imposed on the Cyprus Government for the alleged "Bail-out" of the Cyprus economy.

The full text of the announcement of the EUROGROUP is provided here

The Cyprus Central Bank and the relevant authorities are still working on the decision and are expected to announce in the days to come the implications of this decision.

From the analysis of the various reports in the media there is summary below of our understanding, as of this point in time, of the alleged "solution":

A. Creation of a Good Bank - Bad Bank Model

• Laiki Bank, the second largest bank on the island, will be split into a Good Bank and a Bad Bank; the Good Bank will be merged with another financial institution – most likely the Bank of Cyprus
• All deposits/balances below EURO 100,000 (Good Bank) will be transferred to the Bank of Cyprus
• All deposits/balances above EURO 100,000 (Bad Bank) will remain with Laiki Bank as part of the Liquidation process
• The deposits/balances held by Provident and Pension Funds will all be transferred with no limitation on the amount to the Bank of Cyprus, although this remains to be confirmed
• For the purposes of this restructuring the EURO 100,000 limit is calculated by natural or legal person; hence, all accounts belonging to the same person or entity will be merged together
• Laiki Bank and the Bank of Cyprus will remain closed on 26 March and 27 March 2013 in order for the IT departments to fully merge the systems of the two banks

B. Bank of Cyprus

• All deposits/balances below EURO 100,000 are secured by the Cyprus Central Bank under the European Directive
• All deposits/balances above EURO 100,000 will be subject to a "haircut" (or some other technical term) in the region of 30% to 40%
• The exact percentage of the haircut has not been fully calculated yet
• As compensation for the haircut the deposit/balance holders will be given shares in the Bank of Cyprus
• The Bank of Cyprus will assume the Emergency Liquidity Assistance balance (already provided to Laiki Bank by the European Central Bank) which is estimated at EURO 9.2 billion

C. All Other Banks

• All other Cypriot Banks and Cypriot Branches of Foreign Banks will not be subject to the above restructuring measures
• However, all Banks in Cyprus, including Cypriot Branches of Foreign Banks, will be subject to the Emergency Measures for the control of Fund Flows

D. Emergency Measures for the Control of Fund Flows

• A special legislation has been imposed to give the Government of the Central Bank of Cyprus, as to the authorised representative of the European Central Bank in Cyprus, full powers to impose emergency measures on fund flows
• These measures will be imposed on all transfers out of Cyprus, within Cyprus and between accounts in ALL the Banks and Branches of Foreign Banks in Cyprus
• The details of these measures will be announced in the next few hours
• All the banks will remain closed today and tomorrow

As you can understand, the above measures are unprecedented in the recent history of free societies and affect all involved, including: corporates, individuals, pension funds and other investors from the USA, the UK, Germany, Netherlands, Austria, Luxembourg, Israel, Italy, Greece, the UAE, India, China, Australia, Russia, Ukraine and many more.

We are constantly monitoring the situation and we will provide further updates as any new information becomes available.

Feel free to contact us for any assistance.

The mentioned information was composed & summarised by The Aspen Trust Group
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