Bank of Cyprus haircut at 37.5%

Depositors with capital of over 100,000 euro in the Bank of Cyprus will be forced to have 37.5% of their monies converted into class A shares, valued at 1 euro each, with full voting and dividend rights.

As part of the bailout agreement between the South and the IMF worth 10 billion euro, the Central Bank has agreed to implement these swingeing measures.

Depositors monies, described as “initial deposits contributing sum”, will have a further 22.5% of uninsured deposits frozen until more details and updated independent valuations of Bank of Cyprus’ assets are finalised, as is required by the bank resolution, by end of June 2013.

This bleak pronouncement also states that 30% of uninsured deposits will remain frozen temporarily and is subject to a whole or partial conversion at the notification of the Central Bank of Cyprus, acting as a Resolution Authority.

Central Bank estimates that Bank of Cyprus holds 8.1 billion euro of uninsured deposits, excluding client or trustee accounts, worth a further 700 million; which will generate capital worth 3.1 billion euro.

For the purposes of calculating the recapitalisation of Bank of Cyprus, Central Bank 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 euro bailout agreement, Cyprus’ second largest bank, Cyprus Popular Bank (Laiki) will be wound down and its good part, that is secured deposits (below 100,0000 euro) 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 its own resources, is estimated at 10.6 billion, whereas a further 2.5 billion is provided for in the financial assistance package for the remaining banking sector of Cyprus.

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