- This topic has 15 replies, 9 voices, and was last updated Nov-183:13 pm by
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Up0
Just spotted this on the CFAI website, found it quite interesting:
http://blogs.cfainstitute.org/marketintegrity/2013/03/22/cyprus-and-ohio-mirror-images-in-grab-for-savers-money/My initial thoughts?
1) we are going to see a massive increase in contingent convertible bonds (CoCos, or ‘bail in bonds’ as they are otherwise known).
2) whilst Cyprus and Ohio are effectively doing the same thing in raiding depositors savings, Ohio are doing so with a lot more subtlety. The actions in Cyprus have already destroyed it as a financial centre…even if a revised plan is agreed that doesn’t raid savers pockets, thee will still be doubt in people’s minds and the outflow of cash when the banks reopen will be staggering. -
Up4
Interestingly iceland were criticised when they let their banks fail, however their economy is actually doing quite well now.
Personally I think a bank should be allowed to fail, otherwise your moving away from the true meaning of a capitalist society, however as a society we need to move away from institutions that are too big to fail (and this is coming from someone who very much benefitted from this, having worked for RBS at the height of the crisis!). Granted the will be short-term pain, but in the long run I think it would make the economy stronger. I don’t buy the argument around not letting bond holders lose money…what’s the point of having a credit risk premium in the yield if no one will ever let the company default? Effectively your getting corporate investment grade yields for a treasury bond!
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Up3
Seems that there is little that can be done for a Cypriot run on the banks. Which is probably going to be a hell of a lot more chaotic than Northern Rock…
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Up3
Gosh, didn’t know that about Ohio @MattJuniper! Things are pretty chaotic in Eurozone with Cyprus adding to the chaos.
Quite similar to Greece economically (shipping, tourism. Cyprus has a larger financial centre too), but their portfolio is overexposed to Greek assets. Tomorrow’s announcement should be interesting, it’s either they obtained funding as per ECB’s terms, or let the banks collapse like Iceland. Tough times for the EU.
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Up3
Interestingly iceland were criticised when they let their banks fail, however their economy is actually doing quite well now.
Personally I think a bank should be allowed to fail, otherwise your moving away from the true meaning of a capitalist society, however as a society we need to move away from institutions that are too big to fail (and this is coming from someone who very much benefitted from this, having worked for RBS at the height of the crisis!). Granted the will be short-term pain, but in the long run I think it would make the economy stronger. I don’t buy the argument around not letting bond holders lose money…what’s the point of having a credit risk premium in the yield if no one will ever let the company default? Effectively your getting corporate investment grade yields for a treasury bond!
I completely agree – goes against the pricing concepts we’re taught in the CFA program. Having said that though, as a personal investor I always factored in political factors, e.g. UK government would not have let a loss of public faith in the safety of bank deposits. Politics and financing of that scale is always irrevocably intertwined…
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Up3
68 billion in deposits for a 1.1 million population – just incredible.
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Up3
Guernsey has c.£87bn in deposits for a population of around 60k! You could fit the whole population in Wembley stadium and still have room for the away fans!
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Up3
Nah it’s just short term benefits of politics that interferes with the long term benefits of letting those banks fail.
Looks like they agreed a €10bn bailout deal now.
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Up3
Nah it’s just short term benefits of politics that interferes with the long term benefits of letting those banks fail.
Looks like they agreed a €10bn bailout deal now.
Anyone with more than €100,000 in a bank is losing out…
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Up2
Is it just me or is there always a last-minute agreement where everyone agrees to?
Everyone just showboats for their voters/bosses for weeks, and when the shit is really hitting the fan everyone then agrees on a random plan.
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Up2
Despite its wobbly condition, the Bank of Cyprus still holds a uniquely influential position in the economic and political affairs of a sun-swept nation that sits on potentially large reserves of natural gas and straddles strategic fault lines between East and West.And many reputed Bail Bonds trying to save the Cyprus Bank.
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Up1
@MattJuniper I just wasn’t aware of Cyprus’ status as a financial haven for questionable Russian businessmen. 🙂
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Up1
@mattjuniper thats like a takeover of takeovers. An entire nation!
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Up1
Invasion via economics.
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Up1
Cautious reopening – so far no panic yet: http://www.nytimes.com/2013/03/29/business/global/cyprus-banks.html?pagewanted=all
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Up0
I heard that Russia was open to bailing the country out in consideration for Cyprus becoming a Russian jurisdiction. Now there’s a takeover if ever I’ve seen one!
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