European banks slide as Cyprus rescue plan may hurt ratings

Sovereign Priority

Moody’s said the support package for Cyprus reduces the immediate risk of a restructuring of its sovereign debt. European banks had $39 billion in claims in Cyprus as of Sept. 30, according to Bank for International Settlements data.

“While raising the risk of deposit flight out of peripheral banking systems, the agreement reflects euro-area policymakers’ desire to avoid sovereign defaults in addition to Greece’s,” the ratings company wrote in its credit outlook.

The outcome of tomorrow’s vote on the measures, delayed today for a second day, will be key to determining the direction of asset prices, Frommen said. President Nicos Anastasiades’ government has 20 seats in the 56-member assembly. Diko, which supported him in his election last month, holds eight seats.

The plan has “broken trust in a way that is similar to the taboo that was originally broached in Greece and risks pushing citizens further away from Europe,” Frommen said. “Stocks could improve depending on how the vote goes, but if we see runs on banks or violence then Europe could shiver.”

Russian President Vladimir Putin called the tax “unfair, unprofessional and dangerous,” according to a statement posted on the Kremlin website. Russian companies and individuals have $31 billion of deposits in Cyprus, according to Moody’s Investors Services.

Cypriot banks had 68.4 billion euros of deposits from clients other than banks at the end of January. The planned levy -- 6.75% of all deposits up to 100,000 euros and 9.9% above that -- would whittle down the euro-area’s bailout of Cyprus to 10 billion euros from 17 billion euros, near the size of the nation’s 18 billion-euro economy.

Bloomberg News

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