Cyprus depositors face 60% losses

NICOSIA, Cyprus - Big depositors at Cyprus’ largest bank face accepting losses of up to 60 percent, far more than initially estimated under the European rescue package to save the country from bankruptcy, officials said Saturday.

Deposits of more than $128,000 at the Bank of Cyprus will lose 37.5 percent, which will be converted into bank shares, according to a central bank statement. Depositors also could lose up to 22.5 percent more, depending on what experts determine is needed to prop up the bank’s reserves. The experts will have 90 days to figure that out.

The remaining 40 percent of big deposits at the Bank of Cyprus will be “temporarily frozen for liquidity reasons,” but continue to accrue existing levels of interest plus another 10 percent, the central bank said.

The savings converted to bank shares will theoretically allow depositors to eventually recover their losses. But theshares now hold little value and it’s uncertain when - if ever - the shares will regain a value equal to the depositors’ losses. Emergency laws passed last week empower Cypriot authorities to take these actions.

Cyprus’ Finance Minister Michalis Sarris said the measures were taken to put the Bank of Cyprus on a solid footing.

“We suffered a serious blow without doubt … but we now have a bank which is reformed and ready to assume its role in the Cypriot economy,” the state-run Cyprus News Agency quoted him as saying.

Analysts said Saturday that imposing bigger losses on Bank of Cyprus customers could further squeeze already crippled businesses as Cyprus tries to rebuild its banking sector in exchange for the internationalrescue package.

Sofronis Clerides, an economics professor at the University of Cyprus, said: “Most of the damage will be done to businesses that had their money in the bank” to pay suppliers and employees. “There’s quite a difference between a 30 percent loss and a 60 percent loss.”

With businesses shrinking, Cyprus could be dragged down into an even deeper recession, he said. Clerides accused some of the 17 European countries that use the euro - the eurozone - of wanting to see the end of Cyprus as an international financial services center and to send the message that European taxpayers will no longer shoulder the burden of bailing out problematic banks.

But German Finance Minister Wolfgang Schaeuble challenged that notion, insisting in an interview with the Bild daily published Saturday that “Cyprus is and remains a special, isolated case” and doesn’t point the way for future European rescue programs.

Europe has demanded that big depositors in Cyprus’ two largest banks - Bank of Cyprus and Laiki Bank - accept across-the-board losses in order to pay for the nation’s $20.5 billion bailout. All deposits of up to $128,000 are safe.

Cypriot officials had previously said that large savers at Laiki - which will be absorbed in to the Bank of Cyprus - could lose as much as 80 percent. But they had said large accounts at the Bank of Cyprus would lose 30 to 40 percent.

There’s also concern that large depositors - including many wealthy Russians - will take their money and run once capital restrictions that Cypriot authorities have imposed on bank transactions are lifted in about a month.

Cyprus agreed Monday to make bank depositors with accounts of more than $128,000 contribute to the financial rescue in order to secure $12.9 billion in loans from the eurozone and the International Monetary Fund.

Information for this article was also contributed by Geir Moulson and Adam Pemble of The Associated Press.

Front Section, Pages 13 on 03/31/2013

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