Buchheit On Cyprus: “The Situation Is Spiralling Down”, And Why A Second Bailout May Be Needed

Buchheit On Cyprus: “The Situation Is Spiralling Down”, And Why A Second Bailout May Be Needed

Tyler Durden on 03/28/2013 17:05 -0400

When the world’s leading expert on Sovereign debt restructurings believes that the endgame for Cyprus might be another round of restructuring, adding that “I’m not sure this is over,” it is important to listen. With the calmness in Cyprus today more reflective of paralysis than confidence,  Lee Buchheit senses that the parameters of how much money will be needed to recapitalize the banks have changed. He tells Bloomberg TV’s Lee Pacchia in this brief clip, “the situation is spiraling down… they’ll need more money because the economy is worse, tax collections less, deposits will flow out when they can flow out.” As for which European nation will be next in need of assistance with its sovereign debt burdens? Buchheit agrees with us that while many are looking to Slovenia, he sees real economic and political problems in both Italy and Spain remaining especially since the EU “have certainly changed the rules of the game.”

Published on Mar 28, 2013

Mar. 28 (Bloomberg Law) — The sovereign debt crisis in Cyprus marks the fifth European nation to need a bailout in recent memory, but this crisis is unique because European Union regulators are taking the unprecedented step of taxing bank deposits to finance part of the bailout for the nation’s banks. Lee Buchheit, sovereign debt guru and architect of Greece’s bailouts, tells Bloomberg Law’s Lee Pacchia that despite the drastic measures taken, the endgame for Cyprus might be another round of restructuring. “I’m not sure this is over,” says the Cleary Gottlieb veteran.

While regulators agreed to tax only uninsured deposits, Buchheit feels they were ‘tone-deaf’ and mistaken to initially suggest seizing insured bank deposits as well. ‘It made the Greek bailout look disciplined and far-sighted,’ he says.

In addition, the current plan to use uninsured deposits to recapitalize Cypriot banks marks a major shift in the EU regulatory scheme. “They have certainly changed the rules of the game” for future Eurozone bailouts, he says. Whereas the European Central Bank strongly counseled against impacting senior creditors of banks in previous bailouts, regulators have are now shifting the burdens of bank recapitalization from taxpayers to investors and depositors.

Despite these efforts, however, Buchheit senses that the parameters of how much money will be needed to recapitalize the banks have changed. “The situation is spiraling down…they’ll need more money because the economy is worse, tax collections less, deposits will flow out when they can flow out,” he says.

As for which European nation will be next in need of assistance with its sovereiegn debt burdens? Buchheit feels that while many are looking to Slovenia, he sees real economic and political problems in both Italy and Spain.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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