South Cyprus: A haircut of two parts

South Cyprus’s Central Bank has confirmed today, that 37.5% of the value of deposits of over 100,000 euro at Bank of Cyprus will be converted into shares, effectively imposing steep losses on those accounts. The bank will also freeze a further 22.5% of each deposit until Cyprus has met its bailout terms. The money won’t earn interest and could face further write-offs. Accounts of under 100,000 euro will be protected.

The Central Bank said that 37.5% would be converted into shares and the bank reserves the right to retain another 22.5% until Cyprus bailout terms are met.  37.5% of this difference is automatically converted into Class A’ shares of the Bank of Cyprus, with voting rights and dividends.

Current Bank of Cyprus shares are valued at 21.5 eurocents each.

22.5% of this difference is temporarily ‘frozen’ and possibly part or the whole of it, will be converted into Class A’ shares of the Bank of Cyprus with voting rights and dividends for the purposes of the bank’s resolution. In that regard, an independent valuer will be appointed for the valuation purposes of the Bank of Cyprus. Not later than 90 days from the completion of the valuation, all or part of that percentage might be converted into shares and the remainder returned to the depositor.

To the extent that the 22.5% will be re-deposited, the interest will be calculated retrospectively together with a small increment.The remaining 40% of the difference is temporarily ‘frozen’ for liquidity purposes. However, the interest continues to be calculated for this deposit based on the existing interest rate, plus an increment of 10 basis points. This amount will be ‘unfrozen’ in a short period of time and will not be used for resolution purposes.

Τhe government has said that currency bloc restrictions on transactions would be gradually lifted with the central bank advising that the measures would be reviewed on a daily basis.




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