Bank of Cyprus enforces 37.5% haircut on uninsured deposits

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Bank of Cyprus enforced yesterday a conversion of 37.5% of uninsured deposits (over €100,000) to shares as part of an agreement between Cyprus with the Euro area and the IMF over a €10 billion financial assistance to the island.

Under the Central Bank of Cyprus` decree on the Rescue of Banks with own means, the 37.5% of uninsured deposits will be converted into class A shares worth of €1 with full voting and dividend rights. The contribution of the depositors is described as "Initial deposits contributing sum" as a further 22.5% of uninsured deposits will remain frozen until the finalization of a more detailed and updated independent valuation of the assets of Bank of Cyprus as required by the bank resolution framework, by end June 2013.

Furthermore, 30% of uninsured deposits is also frozen temporarily and is subject to a whole or partial conversion, at the notification of the CBC, acting a Resolution Authority.

According to a CBC document the uninsured deposits in Bank of Cyprus were estimated at €8.1 billion, excluding client/nominee and or trustee accounts amounting to €0.7 billion, which will generate capital worth of €3.1 billion. For the purposes of calculating the recapitalisation of Bank of Cyprus, the CBC took into account losses of €1.5 billion in its loan portfolio, under the adverse scenario of a due diligence review carried out by US investment consultancy firm, Pimco.

Under the €10 billion financial assistance agreement, Cyprus` second largest bank, Cyprus Popular Banked will be wound down and its good part, that is secured deposits (below €100,0000) and assets will be absorbed by the Bank of Cyprus. According to a European Commission agreement, the recapitalisation of Cyprus` two largest banks covered by own resources, is estimated at €10.6, whereas a further 2.5 billion is provided for in the financial assistance package for the remaining banking sector of Cyprus.