The Zacks Analyst Blog Highlights:Citigroup, General Electric, FedEx,
Caterpillar and Goldman Sachs
CHICAGO, April 1, 2013
CHICAGO, April 1, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Citigroup Inc. (NYSE:C), General
Electric (NYSE:GE), FedEx (NYSE:FDX), Caterpillar, Inc. (NYSE:CAT) and Goldman
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Here are highlights from Thursday's Analyst Blog:
What Lessons Has Cyprus Taught Us?
Last Saturday, Cyprus finally reached an agreement on the terms of its bailout
with a group of international lenders, consisting of the IMF, ECB and EU. The
original set of terms was a bitter pill to swallow.
Particularly unpalatable was the proposal to tax insured deposits at 6.75%.
The final agreement eliminates this clause altogether.
Ultimately, uninsured depositors will have to bear the entire burden of
rescuing Cyprus's two beleaguered banks – Cyprus Popular Bank and Bank of
Cyprus. In order to receive the euro 10 billion ($13 billion) bailout package,
Cyprus will have to itself put up a substantial amount. The Popular Bank of
Cyprus, also known as Laiki Bank, will be closed. Its good assets and insured
deposits will be transferred to Bank of Cyprus.
Deposits above euro 1,00,000 will be utilized to fund the amount to be paid by
Cyprus. These frozen deposits are expected to amount to euro 4.2 billion ($5.5
billion) and depositors could lose up to 30%-40%. This is substantially higher
than the originally proposed rate of 9.9% on these deposits.
Incidentally, most of these deposits are from Russia. Weak financial
regulation and low corporate taxes have turned Cyprus into a destination for
funds from affluent individuals and businesses from all over the world. This
is why the country is hugely dependent on its financial sector. In fact,
Russian funds amount to $31 billion in bank deposits. This figure is
particularly relevant when compared to Cyprus' GDP of $25 billion.
However, all this has come to an end thanks to the terms of the bailout. The
fact that foreign depositors will be paying for the country's bailout has
effectively ended Cyprus' lucrative offshore banking sector. This will lead to
a huge loss of income, a rise in unemployment and a reduction in GDP.
Brokerage agency Exotix has forecast a 10% decline in GDP this year itself.
Further action would mean going against the very spirit of the European Union.
This would mean more trouble for Cyprus' economy, already facing a downgrade
from rating agency Fitch. It would also send a negative signal to those
parking funds in other troubled euro zone countries like Spain, Italy and
What the Cyprus deal illustrates is that the Eurozone still has economic
issues which remain a long-term concern. In any case, the rest of the region
is anything but in the pink of economic health. This is particularly relevant
to U.S. companies with large exposure to the Eurozone. According to Citi
Research, a division of Citigroup Inc. (NYSE:C), as of 2010 several large U.S.
companies drew significant revenues from the region.
These include the likes of General Electric (NYSE:GE), among many others.
Earlier this month, FedEx (NYSE:FDX) lowered its earnings forecast, saying
that it had been affected by the global economic situation. Meanwhile,
Caterpillar, Inc. (NYSE:CAT), a significant indicator of the health of the
world's economy, said monthly sales had declined significantly.
According to Goldman Sachs (NYSE:GS), around 50% of international sales of US
companies can be attributed to Europe. Until now, share prices have been
unaffected by the precarious European situation combined with such heavy
exposure. However, markets have been sensitive on occasion. Indices had
declined after Jeroen Dijsselbloem, head of the Eurogroup of Eurozone finance
ministers, said that the approach used in Cyprus would be used in other
countries facing similar problems.
Of course, stocks recovered when he said: "Cyprus is a specific case with
exceptional challenges," but such concerns linger in the background. And
capital controls cannot be one of them. This would go against the very spirit
of the currency union and lead to a further loss of confidence. The Cyprus
pact has put the brakes on a greater crisis for now. But, surely, the Eurozone
will have to find a more permanent solution to its economic malaise.
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