‘Too bad’ for depositors who lost heavily in wake of Cyprus bailout, says Russia

Russia won’t bail out people or companies that stand to lose money held at Cyprus’s two largest banks, first deputy prime minister Igor Shuvalov said.

“If someone gets stuck and loses money in those two biggest banks, that’s really too bad,” Mr Shuvalov said in an interview broadcast on Russian state television.

“But the Russian government isn’t planning to do anything in this case.”

Russia turned away requests from Cyprus for additional financial assistance last month after criticising plans that would have forced losses on insured deposits.

President Vladimir Putin ordered the government to resume talks with the cash- strapped Mediterranean island on restructuring its €2.5bn loan granted in 2011 after an agreement reached last month over a new European-led rescue.

Russia’s government bristled at suggestions that it was responsible for bailing out the euro member as politicians from states, including Germany, alleged that Cyprus was used to launder illegal Russian money. Funds held by Russians on the island aren’t all illegal, Shuvalov said.

“There’s money on which taxes weren’t paid, and there’s money where taxes were paid but for some reason people decided to keep it in Cypriot banks,” he said.

The government is “closely following” the situation around Russian Commercial Bank, a Cypriot unit of state-run lender VTB Group, as it determines what further support may be offered, Natalya Timakova, a spokeswoman for prime minister Dmitry Medvedev, said in an e-mailed statement. VTB had the “most exposure” to the unfolding crisis of any Russian bank, Standard & Poor’s said last week.

Medvedev met with senior ministers and central bank Chairman Sergey Ignatiev last Saturday to discuss restructuring the loan “as well as measures to protect the interests of Russian Commercial Bank and Russian companies conducting financial operations through that bank,” Timakova said.

VTB Group’s exposure in Cyprus is “absolutely manageable,” first deputy president Yuri Soloviev said in an interview with Bloomberg Television’s Guy Johnson and Francine Lacqua on Mar 28. The company’s assets in Cyprus are an “integral part” of VTB Group, he said.

The Moscow-based bank has $13.8bn (€16.3bn) of assets in the country, Moody’s Investors Service said in a Mar 13 report. VTB may lose “only tens of millions of euros” in Cyprus, and its subsidiary contributes about 3% of the group’s total profit, according to a Mar 20 statement on the lender’s website.

Russia would be willing to discuss “specific instances,” where companies partly owned by the state or individuals are facing “serious losses,” from deposits held at Bank of Cyprus or Cyprus Popular Bank, according to Shuvalov.

“We’re prepared to consider it, publicly, transparently, and here in Russia,” he said. “But that absolutely doesn’t require any assistance to Cyprus.”

Cyprus may force losses of as much as 60% on Bank of Cyprus accounts above the €100,000 insured threshold, according to the central bank in Nicosia. To secure a €10bn bailout last month, President Nicos Anastasiades agreed to terms including closing Cyprus Popular and putting its deposits above the insured level in a “bad bank.”

The estimated $20bn of Russian deposits held on the island, while substantial for Cyprus, represents 1% of Russia’s $2 trillion economy and 2% of its domestic savings, according to Natalia Orlova, chief economist at Moscow-based Alfa Bank, Russia’s largest private lender.

“We believe the majority of Russian money in Cyprus belongs to private individuals and small and medium-sized companies, while large Russian entities are unlikely to be deeply affected,” she said in a note. The “majority” of those deposits are above the protected limit, she said.

Mr Shuvalov told reporters last month that Russia may ultimately benefit from Europe’s decision to target deposit holders. By setting that precedent, Europe has cast doubt on the reliability of its banks. he said.