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Cyprus Bailout 'Disaster' Risks New Euro Crisis!!!!!
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Saturday , European officials stunned Cypriots (and many others) by announcing a rescue package for their country that involves a levy on ALL bank deposits. The news is spreading far and wide, causing quite a bit of controversy in the process. There are also questions about what will happen next…in Cyprus and beyond.
With massively overextended banks and a stumbling economy, Cyprus is in desperate need of external funding. Like other struggling euro zone members, it turned to its European partners and the International Monetary Fund for help.
After months of negotiation, a 10 billion euros ($13 billion) bailout package was announced. It spreads the burden sharing in an unprecedented manner by including a de facto haircut on all bank deposits (de jure, depositors receive an equity claim).
"PSI" (private sector involvement) has been featured in other European rescue packages, but none have imposed losses on deposit holders. This one does, and it covers all deposits—through a tax that ranges from 6.75 percent to 9.99 percent, depending on the size of deposits. In addition to its highly regressive design, this element sets aside decades of convention and laws that protect bank deposits below a certain threshold (100,000 euros, in the case of the European Union).
European and Cypriot officials argue that, in light of an extremely challenging situation, this was the best among the unpleasant options available to them; and seemingly they could not ignore bank depositors all together since it is their funds that inadvertently enabled the careless over-expansion of the Cypriot banking system.
There is also a feeling among European officials that Cyprus could be a lax offshore jurisdiction that intermediates funds of dubious origins. The levy counters that. It also conveys a message to peripheral countries that have been getting more complacent on the back of ECB support, a signal that hardliners within Europe have been keen to send.
Citizens are furious—towards their government, European partners and the IMF—with a bank levy that covers everyone, big and small. The specification of such a small differential (6.75 percent vs 9.99 percent) adds fuel to a fire of discontent. All this serves to increase political tension and the risk of social unrest.
The parliament in Cyprus is scheduled to meet Today to discuss the bailout package. We should expect quite a bit of controversy, and quite a close outcome. The terms could be revised. There are also indications of some divisions within Europe. And the possibility of legal challenges cannot be excluded.
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Worst over for Indian economy, but uncertainty ahead!!!!
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The worst may be over for India's economy but uncertainty still lies ahead, and qualitative fiscal reforms are necessary to ward off any further bad news, chief of global rating agency Fitch's Indian arm has said.
"This is the bottom of the pit (for the Indian economy). Now whether we dig a further or deeper pit for ourselves by not implementing the fiscal reforms, or we find steps to climb up, that is where the uncertainty lies," India Ratings Managing Director and CEO Atul Joshi said.
"The worst is behind us, but there is uncertainty ahead of us, which if not handled properly would result in further bad news. If handled properly and executed well, then there is only good news ahead," Joshi said in an interview here.
"This is the bottom and the worst is over as of now," Joshi said, when asked whether the worst is over for the Indian economy.
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Pricing difference scuttles MMTC Offer
The impending share sale of state-owned MMTC Ltd was deferred on Tuesday over wide differences between the government and bankers over pricing of the issue.
Sources said merchant bankers to offering, scheduled to open on Thursday, had recommended fair valuation of Rs 75 per share (translating into market capitalisation of Rs 7,500 crore) against the current market price of nearly Rs 300 (Rs 30,000 crore)
Bankers told the empowered group of ministers (EGoM) the current market price didn't reflect the true value of MMTC, which has a free-float of just 0.67 per cent. After the meeting, disinvestment secretary Ravi Mathur said the EGoM did not accept the recommendations of merchant bankers on valuation issues.
“MMTC pricing was not about discount to the market price. It was a case of repricing as the counter is very thinly traded and has very little free float,” said one of the bankers handling the issue, who didn't want to be identified.
The price to earnings multiple of MMTC, which is primarily engaged in the business of trading in metals and minerals, is nearly 200 times its trailing 12-month profits at the current market price of Rs 318 per share.
An analyst with a domestic brokerage, who also requested anonymity, said the fair price of MMTC was between Rs 50 and Rs 60 per share, translating into a market cap of Rs 6,000 crore.
“The company has clocked a profit of around Rs 100 crore in 2011-12. Even after factoring in its cash balance of about Rs 2,800 crore and investment of Rs 450 crore in various joint ventures and unlisted firms, the fair value of the company turns out to be at best Rs 6,000 crore,” said the analyst.
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SOONER OR LATER STOCK TO CRASH BELOW Rs.100/-
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