Cyprus’ United Renegotiation Reprisal
Cypriot bonds were shaken as the ECB board met in Nicosia with QE details still sparse following government pressure to rework the Troika agreement after Greece’s recent Euro group extension to modify its program in principle. The President travelled to Moscow and warned of sanctions’ toll as Bank of Cyprus added to its 55 percent NPL ratio with Russia and Ukraine impairments. Despite the still high 140 percent loan/deposit rate Brussels in its latest review predicted a lasting credit squeeze as offshore investment fund assets also dipped to $2 billion with CIS pullout and scrutiny. The visit with President Putin covered energy and financial issues including possible further relief on a restructured bilateral bond and hydrocarbon drilling rights in the island’s coastal zone. Russian bidders originally were expected to be active in state company divestitures but have since demurred with their own funding and operating difficulties at home and abroad. Capital controls on big transactions remain in place, and Iceland’s precedent did not sooth worries as they apply 8 years after its rescue even as surviving banks have begun to issue well-subscribed global bonds. Athens’ proposed austerity reversals could likewise be mirrored as future privatizations and pension cutbacks are rethought, and a moratorium on mortgage foreclosures could be continued indefinitely in both places already sidetracking Cyprus package disbursements. Better tax collection is a mutual goal but officials insist non-resident incentives be preserved and are wary that targeting wealthy oligarchs could backfire as they control the direction of surviving key industries like construction and tourism. They are projected to stagnate again this year although growth may turn positive, and double-digit unemployment has been slowed mainly through skilled-worker repatriation and young college graduate migration. In financial services relocation has concentrated on Asia and the Gulf. Hong Kong has lured job-seekers despite another round of protests and recent measures to cool the property market limiting borrowing especially for second homes. Growth was just over 2 percent last year with sluggish retail sales and visitor spending, as Yuan banking system deposits dip on depreciation trends. The new budget will compensate businesses hurt by the Occupy shutdown and raise outlays for the poor and elderly while maintaining a surplus. Profit and salary tax will be cut but foreign investor capital gains will not change despite the mainland’s intended enforcement of its overlooked levy.
In the other autonomous enclave Macau gaming revenue was off 50 percent in February as authorities have been criticized for the lack of economic diversification which once included strong links to former colonizer Portugal. Chinese have been the main applicants for Lisbon’s “golden visas” in exchange for investment in property and other areas. According to the central bank one-quarter of construction loans are un-serviced as the two biggest banks Millennium and BPI may merge to fend off a takeover attempt for the latter from Spain’s Caixabank. Portuguese bonds now yielding 2 percent are viewed as big QE beneficiaries as ECB managers try to unite around the most viable targets.
