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Zephry Management managing director Jim Awad and Liz MacDonald weigh in on the proposed Cyprus bank deposit tax.
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Points right now.
Was -- just mentioned the news out of cypress is sending US markets.
Down earlier the Dow -- and and that's it look much slower than it is right now but we are recovering right now Liz MacDonald is on the story she joins us now with more on what's happening over and snipers that domestic frustrating here.
And -- -- managing director adds upper management as with the Islamic gonna give us some color on this just like old times let me let's start with you do what and and this.
-- -- to actually tax deposits.
In Cyprus.
Created a ripple waves a ripple effect I don't think anyone expected.
Yeah that's right Sheryl and there's news coming out now that the banks may reopen on Thursday instead of tomorrow there and bank holiday mode.
In Cyprus.
Italy tried this too limited effect taxing bank deposits in 1992.
This is now being called -- solidarity look I'm Levy by the ECB now JPMorgan Chase's is again.
The situation is very fluid -- Sachs and JPMorgan Chase analyst light.
The bank tax on deposits in Cyprus they think it's a good plan.
Because if you go back to renegotiate.
Cyprus and spell out the ECB could -- not provide liquidity if the ECB doesn't like a future plan.
That's not like that.
What they've offered now they've been studying the issue the ECB is the sitting at the IMF has been studying at the EU has been studying it.
The problem is -- banks are really find it a lot by deposits not -- -- something at stake into a haircut.
To the bond holders there's that this is -- plan that pick him up with.
The key here is -- the ECB signs off on any other plan at this link gets ditched -- the Cyprus government rejects that is with us we put to a vote.
And Cyprus but that also -- he does we look at what happened with Asian markets overnight and European markets as well.
A Spanish bonds Italian bonds those yields actually jumped on this -- is so really -- the story the contagion authorities Friday at least from an investment burst back.
Well that was the fear overnight that immediately would give runs on the banks.
In Spain and Italy and and other countries as depositors there fear that this -- -- -- a precedent.
And and you can get the same tax over -- but as the day wore on I think people are coming to the conclusion.
That as -- said this is -- specific because they don't have.
Bonds they have mostly depositors and and so it is it is more specific to Cyprus and Cyprus is not that important.
And the feeling is somehow or they'll work it out so I think the what the markets are telling you today.
Is that they can handle this it is an interesting intellectual president.
But -- another thing also is a credit lot of anger over Europe was is the fact that a lot of Russian.
That wealthy Russians have money part gap in Cyprus banks and so you've got you know.
Folks in Germany Spain except -- saying wait a minute this is the bail out for wealthy Russians yet -- that that's an important point of fact Moody's more breaking news is that with a note saying.
That the Russian depositors if this bank to pot the -- attacks passes by the Cyprus government.
David lose two billion dollars to this tax about a third of the deposits and Cyprus.
Are from foreigners so you can imagine.
And -- see a lot of people pulling out their money on Thursday that's -- the ECB stepping in with liquidity on Thursday if there is another run because there was an ATM run over the weekend again the ECB is so key here they QE CB providing liquidity so the banking system doesn't collapse in Cyprus -- -- cited Generale Jim came out -- -- note this morning saying that this shows us that there is no plan in Europe.
And that this this region is still to stabilize by bailout no -- no plane right now that's and.
I I think they've kept leave the system alive by flooding it with money and -- and -- by rhetoric.
But the the fundamental work -- is gonna take years and and as the as the US economy has gotten better and and and we've negotiated our fiscal situations as somewhat a little bit better.
I think investors have come to the conclusion that -- there is a surprise risk.
That's gonna hurt the financial markets it's not gonna come out of Washington it's not gonna -- -- of the United States it's gonna come from Europe.
Or or or something that we don't expect and and today with something that we didn't expect so far the markets -- it.
But this is this is a potential problem.
We should take a look at the dollar the Euro was in detail really -- reducing investors around the world at this point -- overnight.
Flooding to the safety of the US again also US treasury breaking down again below the 2% thing viewpoint from -- ten note.
I think you're -- now down around one point 95%.
Accused the watches the they of course not just the German bund because I think it's a rush to safety there.
But Italy and also you want to watch Spain those yields as well you know -- notes coming out of lawsuit which we've been tracking -- If this said is approved -- -- slight movement -- five to anywhere between five basis points.
Ended basically -- an Italian bonds but if it gets rejected you could see wider spreads breaking out over those bonds.
Because again the fear is is that to be going to renegotiated bailout what would that bailout look like in will be ECB sign off on it -- you -- a close eye on every like you're not your hat.
And and the -- and the issue is what what that agreement would look like an order of arts ramifications for other countries.
Like Spain and Italy again the the key here is.
To have a firewall around Cyprus so you don't to get -- like we used to have a firewall around Greece so you don't get contagion.
And a freeze up in the financial system in Europe.
We're gonna be continue to watch a very tiny island nation split between the Turks and the Greeks -- now the middle of a market story I think about you -- you together again I know it's like we're and it.
As -- a -- let me thank you very much.
