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Treasury bids to stop Laiki Bank UK being sucked into Cyprus bailout Treasury bids to stop Laiki Bank UK being sucked into Cyprus bailout
(about 7 hours later)
Britain is trying to orchestrate a potential rescue of the UK branches of a Cypriot bank, the chancellor said on Tuesday, as he revealed that another €13m (£11m) in cash had been flown to the island for use by troops stationed there. Britain is trying to orchestrate a rescue of the UK branches of a troubled Cypriot bank, the chancellor revealed on Tuesday, as he criticised the handling of the bailout for the tiny island at the forefront of the eurozone's debt problems.
George Osborne told MPs on the Treasury select committee that the government was looking at ways to stop the UK arm of Cyprus's second largest bank, Laiki, being "sucked" into the bailout of Cyprus. With Cyprus battling to open its banks on Thursday for the first time in 12 days, George Osborne revealed that a further €13m (£11m) in cash had been flown in for use by troops stationed there.
"I can say the Treasury is working with the Cypriot authorities on a British solution to the branch of the Cyprus Popular Bank [Laiki]," the chancellor said. The Cypriot finance minister, Michalis Sarris, warned of a "significant" haircut on savings accounts holding more than €100,000 – which could see at least 40% wiped off deposits. "The exact percentage is not yet decided but it is going to be significant," said Sarris, who had hoped to get Russia to contribute to the €10bn bailout, given the large number of its citizens expected to lose billions of euros on deposit in the island's banks.
Osborne told MPs on the Treasury select committee that the British government was looking at ways to stop the UK arm of Cyprus's second largest bank, Laiki, being "sucked" into the bailout, under which Laiki is to be wound down. Customers with deposits of less than €100,000 will be transferred to the country's largest bank, Bank of Cyprus. "I can say the Treasury is working with the Cypriot authorities on a British solution to the branch of the Cyprus Popular Bank [Laiki]," he said.
"Those discussions are taking place at the moment, I can't say a great deal more about them, but we are engaged in negotiations to try to avoid the branch of Cyprus Popular Bank in the UK, or branches, becoming sucked into the Cypriot resolution process," he added."Those discussions are taking place at the moment, I can't say a great deal more about them, but we are engaged in negotiations to try to avoid the branch of Cyprus Popular Bank in the UK, or branches, becoming sucked into the Cypriot resolution process," he added.
Under the terms of the €10bn bailout for Cyprus, Laiki is to be wound down and customers with accounts below €100,000 transferred to the country's largest bank, Bank of Cyprus. Customers with more than €100,000 could lose as much as 40% as Cyprus contributes to its €17bn bailout. As Laiki operates as a "branch" in the UK its depositors are covered by Cyprus, which also guarantees deposits up to the £85,000 Europe-wide limit. However, it is still unclear whether Laiki UK accounts holding more than that amount could be exposed to the bailout haircut.
"There are two banks involved in the restructuring. The Bank of Cyprus has a subsidiary here. It is covered by the UK deposit protection scheme," Osborne said.
But as Laiki operates as a "branch" in the UK its depositors are covered by Cyprus, which also guarantees deposits up to the £85,000 Europe-wide limit.
Laiki runs three branches in London, including one in Mayfair, and one in Birmingham – it has been stressing to customers that it is "business as usual".Laiki runs three branches in London, including one in Mayfair, and one in Birmingham – it has been stressing to customers that it is "business as usual".
The chancellor also revealed that another €13m had been flown to Cyprus to the 3,000 military personnel based there. Banks have been shut for 11 days since the bailout was first announced and had been due to reopen on Tuesday. They are now not expected to open their doors until Thursday, when limits will be put on withdrawals. Osborne said that the bailout "has not been well handled over the last 10 days" while Andrew Tyrie, who chairs the committee, described it as "appalling mismanagement as there could have been, a terrible farrago".
Osborne said the extra cash – on top of €1m flown out a week ago – could "provide a hardship fund if we need it". Concern that the raid on Cyrpiot bank accounts could set a precedent for other bailouts continued to swirl as the European Commission and influential MEPs involved in drafting new laws on bank "resolution" confirmed that the proposed rules would include "bail-ins", which would result in investors and savers taking the hit instead of taxpayers. Yet eurozone central bankers insisted that the formula agreed for Cyprus would not be applied uniformly in banking crises in other countries.
Slovenia may be the first to find out as anxiety mounts that the country faces a worsening bank crisis that may necessitate eurozone intervention within months.
Jeroen Dijsselbloem, the Dutch finance minister who leads the eurogroup, had sparked the anxiety about more bank levies on Monday by remarks interpreted as signalling Cyprus could be a template for other bailouts. Amid concern about outflows of funds from weaker banks, he wrote to the Dutch parliament to insist "there are no apparent signs of a higher-than-normal withdrawals of savings or of transfer of savings from peripheral to core countries". Dijsselbloem's remarks had sparked a market sell off late on Monday and he faced criticism on Tuesday.
Benoit Coeure, a French member of the ECB executive, said: "Dijsselbloem was wrong to say what he said. The experience of Cyprus isn't a model for the rest … no country has the same concentration of problems as Cyprus." Austria's central banker, Ewald Nowotny, added: "Cyprus is a special case."
The UK, German and French stock markets all posted small gains but there were losses in Spain and Italy.
In Cyprus the resignation of the chairman of the Bank of Cyprus, Andreas Artemis, has been accepted after he quit to protest that he had not been properly informed of the scale of the losses.
An outside administrator has now been appointed to run the country's largest bank. G4S, the security firm slammed for its handling of the Olympics, is playing a key role in keeping cash machines full on the island.