$13B package to save Cyprus banks
Last Updated: 257 days ago
The last-ditch effort is underway to save the banking system in Cyprus.
Cyprus secured a 10 billion euro ($13 billion) package of rescue loans in tense, last-ditch negotiations early Monday, In return for the bailout, Cyprus' second-biggest bank, Laiki, will be restructured, and holders of deposits exceeding 100,000 euros will have to take losses.
It was unclear just how big of a hit big depositors will have to take, but the tax on deposits was expected to net several billion euros.
U.S. investors won't care too much about who takes losses in Cyprus, as long as there's a bailout that stops the run on banks in the Mediterranean island nation and keeps the eurozone stable, said Karyn Cavanaugh, market strategist at ING Investment Management in New York.
"If this works out, regardless of the terms, this is going to be good for the market," she said Sunday night.
Without a deal by Monday night, the tiny Mediterranean island nation of about 1 million would have faced the prospect of bankruptcy, which could have forced it to become the first country to abandon the euro currency. That precedent would have roiled markets and spurred turmoil across the entire eurozone.
The tax on large deposits likely will be 10 to 20 percent, in order to raise about $7.5 billion, said Jack Ablin, chief investment officer for BMO Private Bank in Chicago. The move should be well received by U.S. investors because it's the third bailout deal in the eurozone, including Greece and Spain, and in each case the countries have agreed to austerity plans.
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