Submitted by Tyler Durden: Pinning the blame for the collapse of the
Cypriot banking system (and the country itself) on the shoulders of one
man may seem harsh but Laiki Bank's chief risk officer Dimitris
Spanodimos represents the tip of the spear of mass delusion that
encompasses most (if not all) of Europe. Cypriot banks had been
swamped with deposits courtesy of their cozy relationship with Russia
and this left them with, in Spanodimos' words, "comfortable liquidity
and capital position to deepen selectively some highly profitable and
highly promising client relationships." 
So a combination of zero-risk-weighting for Greek government bonds (and their juicy yield), huge deposit inflows, abysmal regulatory oversight, and a risk-manager devoured by the mass delusion that Europe (and more specifically Greece) was all going to be ok (who decided to pull a 'Corzine') - is why the Cypriot banks collapsed - and why the Cypriot people now stand in the street looking for handouts...
Via WSJ,
In August 2010, Greece's economy was tumbling into depression amid angry street protests and a €110 billion bailout. Dimitris Spanodimos, the chief risk officer of Cyprus's second-largest bank, remained bullish.
Mr. Spanodimos boasted on an Aug. 31, 2010, conference call with analysts that the bank was expanding faster than rivals in Greece and bulking up on residential mortgages. "We have used our group's comfortable liquidity and capital position to deepen selectively some highly profitable and highly promising client relationships," he said.
His bank, Cyprus Popular Bank PCL, is now ruined. Its destruction—and the near-failure of its larger peer, Bank of Cyprus PCL—was the result of poor choices by bank managers and of a European regulatory system that gave both banks a clean bill of health as their infections festered.
...
An examination of regulatory documents, conference-call transcripts and financial filings shows that both banks gorged on Greece while nearly everyone else was purging.
In late 2010, even after German and French leaders had openly agreed that creditors of fiscally weak governments should take losses on future bailouts, the two Cypriot banks appeared nonchalant about their exposure to Greek government bonds.
By the end of the year, according to European regulators, the two banks had a combined €5.8 billion ($7.5 billion) of Greek government bonds—€1 billion more than they had held just nine months earlier, and a sum equivalent to about one-third of Cyprus's annual economic output. By comparison, over the same period, Barclays cut its Greek government exposure by more than half.
Both Cypriot banks passed Europe-wide stress tests in 2010, relieving them of pressure to change course. They passed again in 2011.
"Their regulator was clearly signaling it was OK to go on" expanding in Greece, said Christine Johnson, a bond-fund manager at Old Mutual Global Investors in London, referring to Cyprus's central bank and European banking regulators.
Cyprus Popular and Bank of Cyprus have booked combined losses of €4.3 billion on their Greek government-bond holdings.
...
For a while, the Greek business was good, as both banks pursued business with their fellow Hellenophones. The 2006 annual report of Bank of Cyprus speaks of its "dynamic expansion in Greece" and plans for more branches. By the time Greece began to teeter in late 2009, both banks were in deep.
...
In July 2010, a pan-EU regulator conducted "stress tests"
...
Cyprus's two main banks passed easily, with a total of €572 million of surplus capital. The Central Bank of Cyprus declared "deep satisfaction" with the results, which it said "demonstrate the ability of the domestic banking sector to withstand shocks under adverse scenarios."
In 2010, after getting that all-clear, ... Both banks also expanded their portfolios of soon-to-be-toxic Greek government bonds.
In February 2011, Cyprus Popular's then-CEO Efthimios Bouloutas said "we're extremely comfortable" with the bank's capital levels, which he predicted would rise as Cyprus Popular churned out profits."We don't have any rush to strengthen them," he said. He couldn't be reached to comment.
Also that month, Mr. Spanodimos, the risk officer, told analysts during a conference call that he didn't think Greek or Cypriot loans would go bad at an increasing clip.
Around the same time, a top executive at Bank of Cyprus told analysts that the lender was "selectively and cautiously expanding its business in Greece," and noted the bank's capital position "remains strong."
In 2011, the European Banking Authority ordered more stress tests. Like the ones the previous year, they didn't contemplate losses on government bonds. The two Cypriot banks were again found to have plenty of capital to withstand a deteriorating economic environment.
Less than a week after the results came out, European leaders reached a deal for a new Greek bailout that included losses on Greek bonds. That plan was never executed—another plan,which saw steeper losses, eventually was—but now the specter of such losses was out in the open.
...
Three months later, Cyprus Popular executives said they were racing to downsize their Greek government-bond holdings. Mr. Bouloutas told analysts in late November 2011 that the bank was seeing some customers pulling their deposits as a result of "all this adverse publicity," but expressed confidence the trends would quickly stabilize. A week later, he resigned as CEO.
That year, the banks realized huge losses on their Greek government bonds. Both were left with lower capital levels than Cypriot regulators required. Bank of Cyprus scaled back its lending to individuals and small businesses in Greece, but its loan portfolio there stood at about €10 billion. Nearly 12% of the loans were classified as nonperforming.
...
Bank of Cyprus's estimated deficit was €1.56 billion and Cyprus Popular's was €1.97 billion. The banks had until June 2012 to come up with the new capital.
They couldn't raise enough, and Cyprus needed a bailout.
Source
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Marc Faber: "I Am Sure Governments Will One Day Take Away 20-30% Of My Wealth"
Submitted by Tyler Durden: We cautioned readers in 2011 that in a broke world in which the ridiculously named "muddle-through" has miserably failed, a global wealth tax
seeking to expropriate some 30% of all financial assets is coming. As a
reminder, back then we said that "all attempts to eliminate the excess
debt have failed, and for now even the Fed's relentless pursuit of
inflating our way out this insurmountable debt load have been for
nothing.... The only way to resolve the massive debt load is through a
global coordinated debt restructuring (which would, among other things,
push all global banks into bankruptcy) which, when all is said and done,
will have to be funded by the world's financial asset holders: the
middle-and upper-class, which, if BCS is right, have a ~30%
one-time tax on all their assets to look forward to as the great mean
reversion finally arrives and the world is set back on a viable path."
Naturally, if more of our Cypriot readers had paid attention, they would have far more of their own money at their disposal right now, instead of having to beg Merkel's emissaries for a €300 handout tomorrow.
Now, a year and a half later, the realization that the global wealth tax is not only coming but is inevitable in practically every developed country, is finally sinking in, as this interview with Marc Faber confirms: "Until now, the bailouts in Europe and the U.S. were at the expense of the taxpayer. And from now onwards, in my view, the bailouts will also be at the expense of the asset holders, the well-to-do people. So if you have money I am sure the governments will one day take away 20-30% of my wealth."
He is correct, but probably optimstic.
His full Bloomberg TV interview is below:
The interview highlights:
Faber on whether he's participated in the equity rise in the U.S.:
"I think that I was relatively positive about U.S. stocks since March 2009. I haven't been shorting any stocks since 2009. The U.S. march is up and consumer confidence is down. Emerging markets are performing badly relative to the U.S., the dollar is strong, indicating a tightening of international liquidity. I do not think the U.S. market will go up a lot from here. I rather think there is now considerable downside risk."
On whether Europe can repair its house:
"They can repair it and actually Europe now has a current account surplus, which is positive. But obviously the economy is contracting. We are in recession in Europe. This will have an impact on the corporate profits of U.S. corporations as well because 40% of S&P earnings come from overseas, but the bulk actually comes from Europe and not emerging countries. I think that corporate profits in the U.S. will continue to contract as they have actually -- according to S&P -- contracted in the first quarter of 2012."
On why gold hasn't held up as a safe haven:
"When you print money, the money does not flow evenly into the economic system. It stays essentially in the financial service industry and among people that have access to these funds, mostly well-to-do people. It does not go to the worker. I just mentioned that it doesn't flow evenly into the system. Now from time to time it will lift the NASDAQ like between 1997 and March 2000. Then it lifted home prices in the U.S. until 2007. Then it lifted the commodity prices in 2008 until July 2008 when the global economy was already in recession. More recently it has lifted selected emerging economies, stock markets in Indonesia, Philippines, Thailand, up four times from 2009 lows and now the U.S. So we are creating bubbles and bubbles and bubbles. This bubble will come to an end. My concern is that we are going to have a systemic crisis where it is going to be very difficult to hide. Even in gold, it will be difficult to hide."
On whether the raiding of bank accounts in Cyprus set a precedent for Europe:
"MF Global, the depositors were also raided. It is nothing unusual. Philosophically I believe that we shouldn't have deposit insurances, blanketed insurances by governments because it would force savers to be very careful with which bank they would deposit the money. The good banks would pay very low interest and take low risks and the banks that take high risks would have high interest. By the way, in Cyrus, banks were paying very high interest like in Lebanon at the present time I can get 6% on my deposits. So the depositors should have known that something is dangerous, but I would say that the principal now is very important to understand. Until now, the bailouts in Europe and the U.S. were at the expense of the taxpayer. And from now onwards, in my view, the bailouts will also be at the expense of the asset holders, the well-to-do people. So if you have money -- like I am concerned -- I am sure the governments will one day take away 20-30% of my wealth."
Edited by WD
Source
banzai7
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Meanwhile, At Cyprus Airport...
Submitted by Tyler Durden: A quick glance at the Larnaca runways, also known as the Russian (and perhaps even other, but that would impair the media narrative that "only Russian tax-evading oligarchs are evil") private jet parking lot, shows that things are as heated as ever, although maybe just a tad less heated. Channel 4's Faisal Islam observes that while there are 12 private jets on the tarmac, this is one less then ten days ago. When this number drop to zero, the Cypriot depression has officially begun.
But what is funniest is that the the sign advising departing passengers to please limit their cash outflows to just €1000 per passenger is quite noticeably in Russian in the lower version. Fear not: all the Russian money has long since left the now broke country.
h/t @faisalislam
Source
Angelo: Word through the grapevine is action on a 'reversal writ'.... some form of compulsory repatriation banking legislation for the funds that have flown since 15th of March. Is this possible? Or just impossible spin to calm the locals. Any harder further information to enlighten us is always welcome.
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The NWO
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