NICOSIA, March 30 (Xinhua) -- Cyprus' banking authorities have brought about a worldwide unprecedented recapitalization of the eastern Mediterranean island's crippled banking system by using depositors' money and forcing the merger of the two largest banks.
Under an arrangement in force since Friday morning but officially announced in the Official Gazette on Saturday, big depositors in the largest lender, will take a much bigger loss than originally expected and may ultimately reach 60 percent.
Regulations published in the Official Gazette aiming at restoring the capital sufficiency of Bank of Cyprus state that depositors of over 100,000 euros in the Bank of Cyprus will have their money initially slashed by 37.5 percent and will get category A shares in compensation, meaning that they will become the new holders of the bank's equity.
The equity of old shareholders will be downgraded to the last category D, meaning that they will have no voting rights and will receive no dividends or other compensation and will be last in line to get any money in case the bank is liquidated.
A further 22.5 percent of big deposits will be blocked for 90 days to cover recapitalization as needs arise, with bank A shares being issued for the additional amount needed.
The remaining 40 percent will not be subject to any haircut demanded by the Eurogroup in exchange for a 10 billion bailout for Cyprus, but will be blocked until the recapitalization is made final.
One small consolation for big depositors is that any debts to the bank will be repaid out of their deposit account prior to the haircut, but lawyers and auditors said details on how this will be done are still hazy.
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