Cyprus Bank’s Bailout Hands Ownership to Russian Plutocrats

Yes, the Russians gain a banking and military foothold in the Mediterranean, something they've coveted for years.  But the price to depositors was horrific.

http://www.nytimes.com/2013/08/22/world/europe/russians-still-ride-high-in-cyprus-after-bailout.html?nl=todaysheadlines&emc=edit_th_20130822&_r=0

The March bailout hammered bank creditors and depositors in an early test of what has since become the official European Union policy of “bailing-in” banks. The policy is intended to force creditors and depositors to pay for a bank’s mistakes and to spare taxpayers from picking up the entire bill.

Moscow, though furious over the billions lost by Russians in Cypriot banks, still sees Cyprus as a prize worth courting. The Russian government has pushed for access for its military aircraft to an air base in Paphos and for its warships to Cypriot ports.

Depositors with large accounts in Laiki Bank were initially left with just 100,000 euros each, about $130,000, and the rest of their money was confiscated as the bank shut down. Those with more than 100,000 euros in the Bank of Cyprus lost access to 90 percent of their cash, although they have since been promised future access to some of their frozen funds.

At that time, bailout-weary Northern European countries wanted not so much to rescue the banking sector here as to significantly shrink it, and end what they viewed as its reliance on suspect money from the former Soviet Union. A confidential report by the German foreign intelligence agency, known by its German initials as the B.N.D., painted the island as a haven for money-laundering.

The bank’s former shareholders, meanwhile, have been mostly wiped out. The biggest was a Russian tycoon, Dmitry Rybolovlev, who at one point owned a nearly 10 percent stake and, if he had substantial deposits in the bank, would be among the new shareholders. A spokesman for Mr. Rybolovlev declined to comment on his current position.

But most of the now largely worthless old shares are in the hands of Cypriots who bought them as a safe, blue-chip investment.

The Bank of Cyprus is a “zombie bank,” said Theodore Panayotou, director of the Cyprus International Institute of Management.

“It is ironic,” Mr. Olympios added. “The Germans tried to get rid of Russian money and they ended up with a shareholder structure stacked with Russian oligarchs."