Cypriot youth protest as banks stay shut

Thousands of students and hundred of bank workers protested in the Cypriot capital Nicosia as banks stayed closed to stop a run on deposits after the island agreed to a painful bailout to avert bankruptcy. The chairman of Cyprus's biggest commercial bank also offered to resign after the bailout was agreed upon.

By Michele Kambas and Costas Pitas
March 26, 2013
Yahoo! Finance

NICOSIA (Reuters) - Thousands of students and hundreds of bank workers protested in the Cypriot capital Nicosia on Tuesday as banks stayed shut to stop a run on deposits after the island agreed a painful bailout to avert bankruptcy.

The chairman of Cyprus's biggest commercial bank offered to resign after a special administrator was appointed over his head to run the lender, which is being restructured as part of the package to bail out the oversized financial sector.

Cyprus's banks were ordered to remain closed until Thursday, and even then will impose capital controls to prevent depositors from stripping out all their funds.

Cyprus had faced bankruptcy and potential ejection from the European single currency without a rescue deal with international lending bodies. Now that the deal has been struck, it faces job losses and economic contraction.

Reuters journalists estimated up to 3,000 high school students protested outside parliament, the first major expression of popular anger after Cyprus agreed the 10 billion euro ($13 billion) bailout with the European Union.

"They've just gotten rid of all our dreams, everything we've worked for, everything we've achieved up until now, what our parents have achieved," said a student who gave his name as Thomas.

Outside the central bank, about 200 employees of the country's biggest commercial bank, the Bank of Cyprus, demanded the resignation of the central bank governor, chanting "Hands off Cyprus" and "Disgrace".

"We are scared. We were also so proud of the Bank of Cyprus. We worked with a lot of love, not just for the money," said a Bank of Cyprus worker who gave her name as Anthoulla.

RESIGNATION

The chairman of the bank, Andreas Artemis offered to resign on Tuesday, a source at the bank said.

"He sent a resignation letter this morning which will be examined by the Board of Directors convening this afternoon," the bank source said, requesting anonymity.

Dinos Christofides, an accountant and banker, told Reuters he had been named administrator to run the Bank of Cyprus: "It means that from now until further notice I will be running the bank. It could be short term ... or it could be longer."

After returning from last-ditch negotiations in Brussels, Cypriot President Nicos Anastasiades said late on Monday that the rescue plan agreed with international lenders was "painful" but essential.

He agreed to close down the second-largest bank, Cyprus Popular, and inflict heavy losses on big depositors, many of them Russian, after Cyprus's outsize financial sector ran into trouble when its investments in neighboring Greece went sour.

European leaders said a chaotic national bankruptcy that might have forced Cyprus from the euro and upset Europe's economy was averted. Investors in other European banks are alarmed by the precedent of making depositors bear losses.

"The agreement we reached is difficult but, under the circumstances, the best that we could achieve," Anastasiades said in a televised address to the nation.

Finance Minister Michael Sarris said big depositors could face loses of around 40 percent.

The bailout protects state guaranteed deposits of up to 100,000 euros, reversing a previous deal that would have imposed a levy on small depositors as well as big ones, which had infuriated Cypriots and was vetoed by parliament.

Many Cypriots say they do not feel reassured by the new deal, however, and are expected to besiege banks as soon as they reopen after a shutdown that began over a week ago.

Reversing a previous decision to start reopening at least some banks on Tuesday, the central bank said late on Monday that all banks would now stay shut until Thursday to ensure the "smooth functioning of the whole banking system".

TEMPORARY MEASURE

Little is known about the restrictions on transactions that Anastasiades said the central bank would impose, but he told Cypriots: "I want to assure you that this will be a very temporary measure that will gradually be relaxed."

Finance Minister Sarris said capital controls to prevent big outflows of cash would probably last "a matter of weeks".

Such controls are at odds with the European Union's ideals of a common market but the government is anxious to prevent any panic that would cause even more disruption to the economy.

The central bank has imposed a 100-euro daily limit on withdrawals from cash machines at the two biggest banks.

Without an agreement by the end of Monday, Cyprus risked becoming the first country to be pushed out of the European single currency - a fate Germany and other northern creditors seemed willing to inflict on a nation that accounts for just a tiny fraction of the euro economy and whose banks they felt had overreached themselves.

The plan will wind down the largely state-owned Cyprus Popular Bank, known as Laiki, and shift deposits under 100,000 euros to the Bank of Cyprus to create a "good bank", leaving problems behind in a "bad bank".

Accounts above 100,000 euros in both banks, which are not guaranteed by the state under EU law, will be frozen and used to resolve Laiki's debts and recapitalize the Bank of Cyprus by converting deposits into shares.

PRECEDENT SET

The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros of the 5.8 billion euros the EU and IMF had told Cyprus to raise as a contribution to the bailout, Dutch Finance Minister Jeroen Dijsselbloem said.

Laiki will effectively be shuttered, with thousands of job losses.

Comments by Dijsselbloem on the need for bank creditors to accept the potential risks of their failure had a knock-on effect in the euro zone, raising the cost of insuring holdings of bonds issued by other banks, notably in Italy and Spain.

Dijsselbloem said that in future, the currency bloc should first ask banks to recapitalize themselves, then look to shareholders and bondholders and then "if necessary" to uninsured deposit holders.

"Now that the crisis is fading out, I think we need to dare a little more in dealing with this," he said.

Senior members of the European Central Bank sought to row back from Dijsselbloem's comments, insisting that Cyprus is a special case and not a model for other countries.

Cyprus's tottering banks held 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros - enormous sums for a nation of 860,000 people that could never sustain such a big financial system on its own.

(Additional reporting by Costas Pitas in Nicosia, Jan Lopatka in Prague, Catherine Bremer in Paris; Writing by Giles Elgood and Matt Robinson; Editing by Peter Graff)

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