This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Is Cyprus the Subprime of the Euro Crisis?

Stocks in this article: BAC C JPM WFC

Updated from 9:17 a.m. to include the following breaking news on Italy.

This Just In: This piece warned about this happening this morning: Italian banks are losing deposits above 100,000 euros and some say that the Cyprus plan should be a template.

NEW YORK ( TheStreet) -- Cyprus is not one of the so-called PIIGS -- Portugal, Italy, Ireland, Greece and Spain -- that the world worried about during the European debt crisis. The tiny island nation was too small to be considered an issue. I say that Cyprus can become the straw that breaks the Camel's back.

Overnight we learned that it appears that the European Union with possible help from the International Monetary Fund will provide the $10 billion in financing that's needed to shore up the Cypriot banking system. To get the money Cyprus has to raise 5.8 billion euros.


This morning as I sort though the news stories on this subject it appears that the EU is encouraging Cyprus to set up a Good Bank/Bad Bank solution to raise the cash needed. The process will eventually fold Laiki Bank the island's second largest, into the Bank of Cyprus, the largest. While doing this, deposits of 100,000 euros and smaller will be guaranteed by the EU. Then, the uninsured deposits above 100,000 euros would become part of the source of the 5.8 billion euros with a haircut reported to be 30% maybe 40%.

According to Reuters Cypriot banks hold 68 billion euros in deposits and $38 billion are in accounts in excess of $100,000.

To me, the overnight positive reaction in the global stock markets is quite surprising given the hit that depositors in Cyprus will take. Could similar Good Bank/Bad Bank ideas spread to other countries? Is this type of crisis similar to the subprime situation in the U.S. that eventually froze our banking system?

Fed Chief Bernanke chimed in on Cyprus issue recently saying that Cyprus poses 'no major risk' to U.S. banks or the economy. Change the word Cyprus to subprime and that's what Bernanke said in 2007?


In my opinion there could be significant fallout around the world as citizens in every country will have a worry that the seizure of assets might be 'necessary' before the "great credit crunch" comes to an end.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs