European banks climbed after Cyprus reached a deal with creditors on a 10 billion-euro ($13 billion) bailout, avoiding a disorderly default and a collapse of its banking industry.
The Stoxx 600 Banks Index advanced 1.3 percent to 169.04 at 10:54 a.m. in Frankfurt. French lenders led gains, with Credit Agricole SA rising 3.4 percent to 6.79 euros and BNP Paribas SA increasing 2.8 percent to 42.3 euros.
Cyprus agreed to shut Cyprus Popular Bank Pcl, the country’s second-biggest bank, and spared losses for all account holders with less than 100,000 euros. Stock markets across Europe fell last week, first on concern a plan to tax all depositors could hurt the credit of banks elsewhere, then as Cyprus failed to agree with the European Union and International Monetary Fund on a deal.
“The danger has been lifted,” Andreas Plaesier, a banking analyst with M.M. Warburg in Hamburg, Germany, said by telephone. “Not going after insured deposits was an important signal as last week it seemed like the plan would boost uncertainty in countries like Italy and Spain.”
The cost to insure against Banco Santander SA, Spain’s biggest bank, defaulting on its five-year bonds denominated in euros decreased 18 basis points, or 0.01 percentage point, to 279 basis points. Five-year credit default swaps that insure equivalent debt of UniCredit SpA, Italy’s largest bank, declined 16 basis points to 357. A drop in price of the contracts signals improving perceptions of creditworthiness.
The accord announced by European policy makers in Brussels today imposed losses that two EU officials said would be no more than 40 percent of uninsured depositors at Bank of Cyprus Plc, the island’s largest bank, which will take over the viable assets of Cyprus Popular Bank.
Cyprus Popular, 84 percent owned by the government, will be wound down, said Dutch Finance Minister Jeroen Dijsselbloem who is also chairman of the euro ministers’ panel. Those who will be largely wiped out include uninsured foreign and domestic depositors and bondholders, including senior creditors. Senior bondholders will also contribute to the recapitalization of Bank of Cyprus, according to the plan.
Total bank assets on the Mediterranean island swelled to 126.4 billion euros at the end of January, seven times the size of the 18 billion-euro economy, from 78 billion euros in 2007, data from the European Central Bank and the EU’s statistics office show.
Russian companies and individuals have an estimated $31 billion of wealth in Cyprus, according to Moody’s Investors Service. The government has denied the country is being used as a center of money laundering.
“Cypriot banks, being so focused on foreign deposits, didn’t have much of a business model in the first place,” Plaesier said. “The solution isn’t wrapped up yet, but illicit funds seem to be those targeted most.”