Cyprus races to avoid bailout

Cyprus is racing to meet an end of June deadline to pump €1.8 billion into Cyprus Popular Bank — which is heavily exposed to Greek bonds — but will struggle to attract investors, as long as the outcome of the Greek election is unclear.

The island nation’s only other option is finding the money (about 10% of its economy) itself, raising the odds it will become the fourth eurozone country to be bailed out after Ireland, Portugal and Greece.

It is an increasingly familiar example of how quickly problems at just one bank can hurt government finances — even if, in this case, the sector was profitable and well regulated, and had successfully raised capital in the past.

“Cypriot banks were pretty much OK all the way up to 2010. They were quite conservative, never lent more than their deposits and never invested in toxic assets. Then they lent money to the Greek government, and those assets became toxic,” Fiona Mullen, an economist at Sapienta Economics said.

With the Greek election on June 17, and scenarios mounting about the possible exit of Greece from the eurozone, bankers say that this is discouraging potential investors in Popular.

“That is the single most important factor that is keeping people, strategic investors, funds and others, from investing in the Group,” Michael Sarris, Popular Bank’s non-executive chairman, told Reuters. “They (investors) are comfortable in helping cover the existing capital requirements, but they are not comfortable at the idea that it may end up being a lot more.”

Reuters