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'It's robbery!' New Cyprus bombshell as Britons are told they may lose EVERYTHING over £85k
- Bank of Cyprus will see 37.5% of deposits over £85k converted into shares
- Laiki Bank customers are also reported to be facing the loss of 80%
- Experts say there is a good chance that shares will be worthless
By Dan Atkinson And Ian Gallagher
PUBLISHED:18:27 EST, 30 March 2013| UPDATED:04:30 EST, 31 March 2013
British expats in Cyprus face a near-total wipe-out of any deposits over £85,000 as the full nightmare of the stricken island's EU bailout became clear yesterday.
Although it was known that the wealthiest savers would take a large hit from last week's €10 billion (£8.5 billion) EU rescue deal, the loss is far greater than feared.
The blow will fall on customers of the country two biggest banks – Bank of Cyprus and Laiki Bank.
British ex-pats face a wipe-out of any deposits over £85,000 as the country sinks further into debt
Savers at the Bank of Cyprus will see 37.5 per cent of any deposits over £85,000 converted into shares in the bank
Bank of Cyprus savers will see 37.5 per cent of any deposits over €100,000 (£85,000) converted into shares in the bank, with a strong possibility that these will prove worthless. Another 40 per cent will be repaid only if the bank does well in future, while 22.5 per cent will go into a contingency fund that could be subject to further write-offs.
Laiki Bank customers are also reported to be facing the loss of 80 per cent of their deposits above the £85,000 limit.
An early bailout plan – highlighted by The Mail on Sunday two weeks ago – would have seen the losses shared across all bank customers, regardless of their balance.
However, that plan was voted down by the Cypriot parliament, leaving the country in urgent need of a new solution to raise its €5.8 billion contribution towards the bailout.
Thousands of Cypriots demonstrate to protest against the harsh treatment imposed on Cyprus by the Eurogroup earlier this week
The deal – which was clinched last Monday between Cyprus, the European Union and the International Monetary Fund – made clear that richer bank customers would shoulder a much larger bill.
Although it is not known how many of the 60,000 British expats living on the island have deposits of more than £85,000, it is likely that a considerable number will be caught in the net.
Neil Hodgson, 48, who moved to Paphos, on the south-west coast of the island, six years ago, said he has lost nearly £200,000. The former farmer, who has two accounts with Bank of Cyprus, added: 'I had more than €300,000 in my deposit account and €20,000 in my current account. When I went to the bank the other day I was told the total balance for both is €100,000.
'They were unable to explain how this had been worked out but indicated I might get some back at a later stage.
'I checked online and it confirmed that the €20,000 in my current account remains, but that I only have €80,000 in my savings account. It's robbery, plain and simple.'
Laiki Bank customers are also reported to be facing the loss of 80 per cent of their deposits above the £85,000 limit
Banks in Cyprus are open for normal business but with strict restrictions on how much money their clients can access, after being shut for nearly two weeks
Mr Hodgson, from Newcastle upon Tyne, whose wife died two years ago, said he moved to Cyprus believing he was destined for a 'happy life of semi-retirement'.
'Our farm in Ayrshire was bought by a mining company and I came into a lot of money,' he added. 'We moved to Cyprus for the sunshine and easy life but it has turned into a nightmare.
'My big mistake was to move all my money here, but at the time things were very stable. Most of the Brits here had the foresight to move their money in the last few months, but I genuinely thought it would be OK. I'm not sure what the future holds now.'
The Treasury has said it will compensate any of the 3,000 British Service personnel facing losses.
Those hit hardest include thousands of wealthy Russians who have deposited millions of euros on the stricken island. Peter Dixon, strategist at European bank Commerzbank, said: 'These suggested new sacrifices being demanded of better-off depositors sound even worse than we assumed.
'The problems in Cyprus are twofold. First, the central bank ignored the huge build-up of debt. There was a problem of mismanagement.
'Secondly, the Cypriots essentially imposed these tough solutions on themselves and the eurozone rubber-stamped them.'
Ordinary Cypriots step in the streets to protest against the massive "haircuts" imposed by The European Union, the European Central Bank and the International Monetary Fund
Last week markets took fright at suggestions that the Cyprus model could be a blueprint for future bailouts elsewhere in Europe.
Those with less than £85,000 in the bank have also seen themselves hit by the bailout. Temporary capital controls have been imposed to stop residents taking cash off the island, including capping cash machine withdrawals at €300 a day.
At the same time, businesses have been told they will be unable to transfer more than €5,000 abroad without approval, while no one, including tourists, can leave the island with over €1,000 in cash.
Meanwhile, the spotlight has now swung to Slovenia, another small member of the single currency in which investors are losing faith.
Last week, the price it had to pay to borrow money jumped sharply as markets began to take account of the risk that the country may default on its debts. However, on Friday, finance minister Uros Cufer insisted: 'We will need no bailout this year. I am calm.'
Dan Atkinson: How the euro turned into the biggest theft in history
For a currency that promised to provide a sure bet on a glorious future, the euro is turning into the biggest theft of people's savings in Western Europe since the war.
Greece, Ireland, Portugal and Spain were among the first to be crushed by the fallacy of a one-size-fits-all currency. Now it is Cyprus's turn, and the scale of losses for some savers is eye-watering.
Last week, the latest Cypriot bailout proposals hinted at a 40 per cent levy on all deposits of more than €100,000, or £85,000. This weekend, it emerged that the true cost for those better-off depositors could be much closer to 80 per cent. British expats feature prominently among those who will suffer from an effective confiscation of their assets.
The euro is setting out to be the biggest theft of people's savings since the war
Claims that the victims are shady Russian oligarchs have a nasty whiff to them, and even if some of the cash that will be taken is of doubtful provenance, that cannot justify the burden now being placed on the tiny island economy.
Smaller savers may not have been hit by a levy on their bank accounts, but they will be swept up in the economic storm that is sure to descend on Cyprus as a result of such draconian measures.
It's tempting to wonder why any troubled eurozone country like Cyprus was ever let into what was obviously a rich man's club.
But that is unfair – the poorer members were welcomed with open arms, with the assurance that the euro would turn them into German-style economic titans. It was like persuading a pauper to join a casino.
Yes, Cyprus let its banking sector balloon wildly and, yes, it is the Cypriot government that has dreamt up some of the more masochistic features of the various bailout plans.
But all this human sacrifice in the eurozone – austerity, mass unemployment, arbitrary bank account levies – is about saving the euro. You wonder how much pain there has to be before someone realises that what must be sacrificed is the euro itself.
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