Published April 15, 2013
BERLIN – Large depositors who kept their money in the two biggest Cypriot banks stand to lose up to 8.3 billion euros through the restructuring of the two institutions, a European Commission document showed.
It is part of an estimated total 10.6 billion contribution from investors for restructuring the Cypriot banking sector, which also includes wiping out shareholders and bondholders in Laiki, or Popular, Bank as well as imposing losses on junior bondholders in the Bank of Cyprus and a deposit-for-equity swap
The Mediterranean island will close Laiki, its second biggest bank, and restructure its biggest, Bank of Cyprus, in return for an international loan of 10 billion euros over three years, without which Cyprus would be unable to pay its debts.
Cyprus and international lenders decided that depositors who had more than 100,000 euros in the two banks will lose some of their money to contribute to the recapitalization of the institutions, along with shareholders and bond holders.
Deposits of up to 100,000 euros are guaranteed.
"The bail-in of uninsured depositors of Laiki and Bank of Cyprus will provide an estimated contribution to recapitalization of 8.3 billion euros," the document, dated April 12 and marked "final" said.
In a footnote, it added: "This is a maximum estimate. The final amount will depend inter alia on the conversion under the debt-for-equity swap in Bank of Cyprus and the recoveries of Laiki Bank."
The final document no longer makes the distinction - found in an April 9 draft - between gross financing needs, which include money that Cyprus can generate itself, and net financing needs, which is the amount Nicosia needs to borrow.
In the draft, the Commission said the gross financing needs of Cyprus between the second quarter of this year and the first quarter of 2016 would be 23 billion euros, of which 13 billion would come from Cyprus.
That meant the net financing needs were 10 billion euros, of which the euro zone bailout fund, the European Stability Mechanism (ESM) would provide 9 billion and the International Monetary Fund the remaining 1 billion.
Of the 10 billion euro loan, 2.5 billion is earmarked for the recapitalization of the rest of the restructured banking sector, in case more people than expected cannot pay back loans, money possibly needed to recapitalize the Hellenic Bank and the island's cooperative banks.
A further 4.1 billion euros of the loan will go to redeem maturing debt and 3.4 billion to cover government expenses.
The Cypriot banking sector got into trouble mainly because it lost 4 billion euros, or 22 percent of Cypriot GDP, on the restructuring of Greek sovereign debt last year, which itself was a condition for a second emergency loan package from the euro zone to Greece.
After the closure of Laiki, the sell-off of Greek subsidiaries of Cypriot banks and the restructuring of the Bank of Cyprus, the sector's size relative to the economy will have halved, to about 350 percent of Cypriot GDP.
(Reporting by Jan Strupczewski; editing by Rex Merrifield/Jeremy Gaunt)