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Record Levy On Cyprus Bank Deposits

Published 03/18/2013, 08:40 AM
Updated 01/01/2017, 02:20 AM
Risk aversion tension eases after the Cyprus Govt seeks to amend the Deposit levy terms

Notes/Observations

Fresh round of turmoil, after the announcement of an unprecedented levy on bank deposits in Cyprus; Banks will seize as much as 9.9% of deposits to help pay for Cyrpus' bailout.

Asian and European stocks were broadly lower after markets reacted with shock to the Cyprus bank tax proposal

Cyprus received a €10B bailout from the Troika, but with harsh conditions that included a haircut on current bank deposits. The first draft of the deal calls for a 6.75% cut for smaller depositors with a 9.9% tax on accounts over €100K, with the tax contributing €5.8B towards the bailout. But percentages may be revised, so that small depositors may an even lower tax while larger depositors pay a higher one. Also as part of the financial aid package, Russia agreed to revise the terms of €2.5B loan to Cyprus, extending the maturity from 5 years to 8, and reducing the interest rate below 4.5%. The IMF is also expected to contribute to the bailout. The Cyprus Parliament will vote on the deposit haircut today, the passage of the tax on deposits is far from assured as the parliament is highly fractured.

Cyprus Govt to introduce new proposal to tax Cyprus banks deposits later today; Deposits below €100k to be levied 3% tax, with deposits of up to €500k at 10%, above €500k at 15%

ECB's Asmussen: Cyprus can alter bailout program terms as long as total amount of savings (€5.8B) remain the same

Economic Data

(EU) ECB: €12M borrowed in overnight loan facility vs. €17M prior; €132.6B parked in deposit facility vs. €117.8B prior.

(HK) Hong Kong February Unemployment Rate: 3.4% v 3.4%e

(IT) Italy January Total Trade Balance: -€1.6B v +€2.1B prior; Trade Balance EU: +€0.6B v -€1.2B prior.

(EU) Eurozone Jan Trade Balance seasonally adj: €9.0B v €10.9Be; Trade Balance unadj:-€3.9B v -€3.5Be

(IS) Israel March Inflation Forecast: 1.8% v 1.9% prior.

(IS) Israel February Money Supply Y/Y: 12.9 v 10.6% prior.

Fixed Income:

(NO) Norway sold NOK7.0B in 12-month Bills; Yield: 1.61% v 1.77% prior.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices: FTSE 100 -0.70% at 6,446, DAX -1.1% at 7,955, CAC-40 -1.2% at 3,799, IBEX-35 -1.9% at 8,455, FTSE MIB -2% at 15,729, SMI -0.90% at 7,791, S&P 500 Futures -0.80% at 1,540

European equity markets are broadly lower, as traders assess the implications of the Cyprus bank deposit levy on eurozone banks. Indices have pared losses, as additional details continue to be released related to the Cyprus proposal. The Cyprus Central Bank said that the ECB has pledged to provide Cyprus with liquidity if the banking levy is approved. As expected, today's weakness has been led by the financial sector. Underperformers among European banks include Barclays, SocGen and Unicredit, while shares of HSBC have outperformed. Resource related companies are broadly lower, tracking the declines in oil and copper prices. In terms of upcoming event risks, Cyprus' parliament is due to debate the bank levy proposal later today, while the Eurogroup may hold a teleconference on the matter. Later during the week, the US FOMC is due to hold its monetary policy meeting (March 19-20th), while the UK's budget statement is expected on Wed March 20th.

UK movers [Marks & Spencer +7% (higher on renewed takeover speculation); Sage Group -3% (technical weakness), ENRC -2.5% (concerns related to writedown)]

France movers [STMicroelectronics +1% (options related to ST-Ericsson jv); Vivendi -1.5% (broker commentary)]

Italy movers [Unicredit -4% (Q4 net loss wider than ests)]

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