Author Paul Holmes
It’s a fascinating paradox that whilst the investment community in the USA watches in horror as PFG Best and MF Global collapses many retail forex investors, currently dealing through a plethora of brokers and label brokers, appear to be impervious to the credit rating issues and red flag warnings over Cyprus…
Investors are aware of the phrase “investor paralysis”; doing nothing with regards to your investments or positions until it’s too late. It may have escaped many retail speculators’ attention but the credit rating of Cyprus is now at junk levels, it ranks on a par with Greece. Cyprus’ credit rating was cut to junk status by Fitch on the 25th June, reflecting fears that the small country, which is heavily reliant on financial services for its economic growth, could require a eurozone bailout in order to shore up its banks.
Cypriot banks are heavily exposed to Greece, estimates from Cyprus have suggested that it’ll need 4bn euros (£3.2bn) in order to support its banks through the short term, said Fitch. This would be on top of 1.8bn euros Cyprus said it immediately needs in order to recapitalise its lender Cyprus Popular Bank. Cyprus’ junk credit rating means it is almost impossible for it to borrow money from international markets, quite simply it’s too expensive for it to do so and the screw appears to be tightening in Cyprus as its closest neighbouring business partner, Greece, may finally be entering it’s economic death throes.
Line in the sand drawn for Greece?
The International Monetary Fund (IMF) has told the European Union (EU) that it won’t provide additional funds for Greece, according to the German newspaper Der Spiegel. Athens was looking to receive a bridging loan that would provide it with €3.1bn to pay off a bond held by the European Central Bank (ECB) maturing on August 20th. According to the report, the IMF’s unwillingness to provide additional funds makes a bankruptcy very likely forcing Greece into insolvency as early as September.
In a meeting over the weekend Greek Prime Minister Antonis Samaras told the former US President Bill Clinton that the current situation in Greece in very similar to the Great Depression. “You had the Great Depression in the United States,” Samaras told Clinton, who was visiting Greece as part of a delegation of Greek-American businessmen. “This is exactly what we’re going through in Greece; it’s our version of the Great Depression.”
Russia as the White Knight
A Russian ‘billionaire’ has apparently informed Cyprus that it is willing to give the country a 5bn euro loan if Russian shareholders are given permission to increase stakes in Bank of Cyprus, according to a report from Alithia.
The newspaper informs that Russian billionaire Dmitry Rybolovlev has been discussing with the Cypriot government about raising his stake. Under current law he would need permission from the country’s central bank, as he already owns 9.9% of the financial institution.
Cyprus became the fifth Eurozone country to request a bailout from the European rescue fund due to pressures on its banking sector. The country needs at least €2.3bn to recapitalize both Cyprus Popular Bank and Bank of Cyprus. At the time, Finance Minister Vassos Shiarly said the country would also seek enough money to help with its budget deficit and that the full amount would be decided “over the course of weeks”.
The Troika (inspectors from the European Commission, International Monetary Fund and European Central Bank) are expected to arrive in Cyprus on July 23rd to talk over details of the country’s request for financial assistance.
End game..
Investors and forex speculators who use Cyprus based brokers need to keep a ‘weather eye’ on developments after the Troika finish their deliberations. If the prognosis is poor and the loan/investment from the Russian ‘oligarch’ fraternity is not forthcoming (or slow to materialise) then investors and speculators have surely had enough warning. A cursory glance at certain leading Cyprus based brokers’ websites reveals that several currently bank with those banks singled out for recent ‘spectacular’ rating agency downgrades.
DYOR (doing your own research) is essential for forex traders who should never stop evolving. Given the volume of website column inches dedicated to FX trading there should never be any excuses for being ignorant of current developments in the world of FX trading. Investor paralysis is not an option..neither should it ever be used as an excuse..
There is a lot of money going into and out of Russia through Cyprus, mainly because of historical reasons, and there are laws in Russia specifically for Cyprus to make this process cheap and easy. Obviously, russian special interest groups / oligarchs have no interest in an external review of the Cyprus banking sector by the Troika. Who knows what they will find in the books. Thats also the reason Russia helped them out with a loan a few years back already.