* Russians have stashed huge sums in Cyprus
* Stand to lose billions under bank deposit scheme
* Already looking for other homes for cash
By Megan Davies and Lidia Kelly
MOSCOW, March 18 Russians responded angrily on
Monday to the threat of a levy on bank deposits in Cyprus that
could end the Mediterranean island's appeal as a safe haven for
their money and cost them billions of euros.
Russians have stashed away huge sums in Cyprus since the
Soviet Union collapsed in 1991, making the most of low taxes and
light regulation to keep their money safe and, in some cases, to
But Russian banks, companies and individuals will be hit
hard if Cyprus imposes the one-off levy on bank deposits as part
of a European Union bailout, and some started withdrawing their
money even before the weekend deal was agreed.
"Corporate clients have been calling and emailing asking
what is happening and they are quite concerned to say the least,
because they need to know what to do," said Thomas Keane,
co-founder of Cyprus-based law firm Keane Vgenopoulou &
Associates LLC, which has Russian corporations amongst its
clients. "They are considering discussing looking at other
Keane said that in the past ten days since rumours surfaced
about such a move, Russian depositors had taken around 2 billion
euros ($2.6 billion) out of Cyprus.
A Moscow-based adviser said: "People will start looking at
London, Zurich, maybe the Far East, Switzerland."
Cypriot ministers were trying on Monday to revise the plan
to seize money from bank deposits, which could amount to 9.9
percent on accounts holding more than 100,000 euros, but the
damage has already been done in Russia.
Michael Pugh, partner at law firm Hogan Lovells in Moscow
said he expected the move to provoke turmoil in the markets and
could lead to people withdrawing their deposits, which in turn
may destabilise Cyprus further.
President Vladimir Putin said the move was "unfair,
unprofessional and dangerous" and Russians with money in Cyprus
said they had lost confidence in the banking system of a country
with which they share Orthodox Christian links.
"When I heard about it, my first thought of course was 'Oh
God, I have money there.' And I got scared. Really scared," said
a panicky customer who declined to give her name outside a
branch of Uniastrum Bank in Moscow.
She poured scorn on an official statement by the bank that
client deposits were secure.
Uniastrum, a bank best known for providing payments
services, is controlled by Bank of Cyprus, in which Russian
billionaire Dmitry Rybolovlev owns a minority stake.
There is no official sum available in Russia or Cyprus for
the amount Russian banks, firms and individuals hold in Cyprus.
But of almost 70 billion euros in deposits held there, a little
less than half is held by non-residents and most are believed to
One Russian bank, Alfa Bank, estimates that $70 billion of
illegal capital flight from Russia in the past two decades may
have found its way to Cyprus.
Moody's rating agency said last week Russian banks had about
$12 billion placed with Cypriot banks at the end of 2012 and has
estimated that Russian corporate deposits at Cypriot banks could
be around $19 billion.
"We think that the $19 billion exposure is mostly wholesale
- ie corporate," Eugene Tarzimanov, Senior Credit Officer at
Moody's in Russia, told Reuters.
Some of Russia's largest banks have some credit exposure to
Cyprus. VTB, Russia's second-largest bank by assets,
had $13.8 billion in assets and $374 million through its Cypriot
subsidiary, Russian Commercial Bank, at the end of 2011.
Shares in Russia's top lenders Sberbank and VTB
both fell more than 3 percent in trading in Moscow.
VTB has said it is closely watching the situation and that
it will evaluate the consequences after studying the law's text.
Sberbank said it does not have its own funds in Cyprus and does
not disclose information about customer accounts.
Although Putin criticised the levy, he has called for moves
to clamp down on the capital flight - particularly as illegal
transfers abroad deprived state coffers of almost $50 billon in
2012, central bank chief Sergei Ignatyev said.
"There is definitively a positive from the point of view of
the government - in that the conditions of holding money in
Cyprus are becoming tougher and less profitable," said Nikita
Petrov, a professor at the Higher School of Economics in Moscow.
"This fits in with the idea of 'de-offshoring' which Putin
has been calling for."
Ivan Tchakarov, Chief Economist, Russia & CIS at Renaissance
Capital, said the moves were "obviously manageable from a macro
perspective but will be very painful for individual depositors."
"Russians can ask a fair question - we have a deep
relationship with Cyprus and have been helping them with loans
... In terms of the Russian reaction - they are not happy," he
As part of a package of support for Cyprus, EU officials
expect Russia to extend an existing 2.5 billion euro loan by
five years, until 2021, and reduce the interest rate.
But Finance Minister Anton Siluanov said a failure to
coordinate with Russia on the bailout could affect Moscow's
decision on the restructuring.