Saturday, March 23, 2013

An Inside Take on Cyprus and What Country Might Financial Crisis Hit Next

After having the opportunity to talk with several individuals very familiar with the Cyprus situation, here are a few takeaways.

Russian leaders are justifiably insulted by Eurozone officials who structured a Cyprus bailout without bringing the Russians into the discussions. Says one person,"Because Russia has a 2.5 billion euro ($3.2 billion) loan out to Cyprus, they are a major creditor and should have been in the restructuring meetings from the start."
Even if the tax threshold is raised to 100,000 euros on deposits, this will impact many Cypriots.

The situation in Cyprus is different from that of many other European countries and the United States in that there is no stock market in Cyprus, so Cypriots generally have only two investment options, banks or real estate. Thus, Cypriots on an individual basis hold more in a bank account than an American or other European would. And Cypriots are savers. This means that many have balances greater than 100,000 euros, which is the new threshold being discussed for a tax on deposits.

Further many Cypriots with amounts under 100,000 euros save through Providence Funds, which are a type of money market fund that is tax advantaged in that interest earned in those accounts is untaxed until withdrawn. At this point it appears that the sums the Funds hold on deposit with Cypriot banks will be taxed. Thus, even very small savers who hold their funds through Providence Funds could experience losses because of the tax grab.

Although there are various numbers being thrown about as to how much Russian money is in Cyprus banks, one insider tells me that it is really impossible to know, since significant money invested in Cyprus banks is in the name of Cayman Island or Virgin Island brass plate corporations. There is no way to know who is really behind these "shell" corporations. "It could even be some German money," says one insider.


One insider believes that what may ultimately occur is that Cyprus may have to give up its gold reserves as part of a restructured bailout. And that bank pension funds may be nationalized, that is, Cyprus will grab the assets of the pension funds and use the assets to pay off the bankster debt. The government of Cyprus would then be responsible to payout on the pension funds over time. (Note  to Cypriots: If the pension funds are nationalized, don't expect any payments to you anytime soon.)


One insider told me that he expects problems in Slovenia banks next. I pushed him to give me other names. After Slovenia, he said that Italian and Spanish banks were both very weak and vulnerable to crisis.


  1. Rob Wenzel,

    Where did you get the info that there is not stock market in Cyprus? I might be blind or dumb but there has been a stock exchange in Nicosia since 1996. It is currently suspended pending the various troubles that the banking system and the overall economy is dealing with; but, Cyprus stock exchange has been alive and well for decades!

    1. Spoke to my insider, who is very close to the financial environment in Cyprus and he tells me that there is not much to the exchange beyond a name. There is minuscule trading done on the exchange.