Would the EU’s Depositor Tax be Illegal?

The supreme law of Cyprus is her written constitution and Article 24 (4) states:

“No tax, duty or rate of any kind whatsoever other than customs duties shall be of a destructive or prohibitive nature.”

Given that all bank depositors are to be charged and bailed in ‘at a rate‘ and not just the depositors of the two banks in need of radical balance sheet restructuring, we should argue that even were parliament to pass the proposed depositor tax this could and would be challenged in the Supreme Court.

The only legal way out under the constitution is a combination of a ‘bail in’ for amounts above Euros100,000 held as deposits at the Bank of Cyprus and Laiki Maifin, together with a restructuring of Cyprus’ sovereign debt.

Copy and paste the link to your browser and find the relevant section of the Cyprus constitution:


Orphanides – Cyprians Not Equal Under EU law

As the banking crisis enters its third day, with no end in sight, the former chairman of the Cyprus Central Bank and member of the board of the ECB, Ethanias Orphanides, accused northern European governments of blackmail and prognosticated the slow death of the EU as a result.

Source: Bloomberg Surviellance

Meanwhile the Cyprus parliament is about to vote on the watered down package which would protect deposits of less than 20,000 Euros. Some reports suggest that a majority is holding out for a threshold of 100,000 Euros while Russian elements, including the Russian government and oil giant, Gazprom, manouvre for positions in military bases and controlling interests in Laiki Marfin bank.

Cyprus bank ‘bail in’

The most significant financial event in recent history was announced today when the EU’s institutions and members pressed Cyprus to restructure all Cyprus based bank deposits effectively applying a haircut to all accounts of between 6-10 percent. The decision took no account of stewardship and compensated all depositors with shares in the Bank of Cyprus and Laiki Marfin.

The coerced Cyprus government felt obliged to comply failing entirely to protect widows, orphans and those with less the supposed EU guarantee of Euros100,000.

A very dark day indeed for Cyprus while the EU’s decision lacked finesse and fairness.

Boosting Your Portfolio

Us having just published an essay about unfair prejudice of controlling shareholders against their minority brethren we are especially pleased that Aberdeen Asset Management’s star manager Hugh Young begins his list of the top ten tips to boost your portfolio with the stipulation that one must identify who controls a company and appraise their treatment of minorities (Daily Mail 29th September, 2012).

Mr Young goes further listing nine of his ten other points, to wit:

2. Companies are about people as much as assets. Sir John Rose was the outstanding CEO who turned around a hitherto moribund Rolls Royce plc.

3. Balance sheet strength is critical. Premier Foods plc over borrowed just before a financial crisis in order to buy a competitor. It almost became insolvent as a result.

4. Know what you are buying. Facebook’s IPO lacked credibility because it was far from clear how it would grow revenue in order to justify the price tag.

5. Be wary of over ambition. Even with a strong balance sheet too much imperialism can lead to financially damaging consequences as was the case when Rio Tinto bought Alcam in 2007.

6. Think long term. Equity investment is about investing for at least ten years. Balancing equities with government bonds say 50:50 reduces an investor’s time horizon making a blend of the two theoretically advantageous.

7. Benchmarks are tools for measurement and not the means of devising an asset allocation.

8. Take advantage of irrational behaviour. As Warren Buffet said in 2008, be greedy when others are fearful and visa versa. On this basis an investor could skew the 50:50 allocation towards more or less risk.

9. Do your own research or use carefully selected experts who make recommendations based upon good fundamental analysis.

10. Focus on industries. Uniliver’s Lipton, Vaseline and Hellemans have been market leaders for over a century. Look for unique selling points or differentiation which complement all of the previous nine points.