Forex Flash: Owners of large deposits in Cyprus may need to wait months for outcome – UBS

FXstreet.com (Barcelona) - The troika and the Cypriot government agreed on key elements of a bailout agreement overnight and Eurozone finance ministers subsequently approved it too. Although German and Dutch parliaments will likely have to vote on the measures, crucially the Cypriot parliament will not, as the concept of a levy (or tax) on depositors has been abandoned entirely.

Instead, legislation already rushed through parliament on Friday to deal with the wind-down of banks will do the heavy lifting. Deposits will still be adversely affected, but in different ways. First, all deposits less than €100 k will be exempt from financial loss, which differs from last week's original plan (which had called for a haircut of 6.5%). According to Research Analyst Gareth Berry at UBS, “We note though that even these deposits will likely be partially immobilized via capital controls” - or what the Eurogroup statement referred to as "administrative measures".

Finance ministers implied Treaty violation was not an issue here and the measures are justified "in view of the present unique and exceptional situation and to allow for a swift reopening of the banks". Second, deposits greater than €100k will be hit in different ways depending on which of the two main banks the deposits were held in. Large deposits held in one bank will be frozen and the bank itself will be wound down. Owners of such large deposits may in theory have to wait months before learning of their fate. The aim is to raise €4.2B from these deposits, suggesting the financial loss to depositors will be severe.