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The S&P 500 Is The Likely Winner Of The Crisis In Cyprus

Apr 01 2013

English: Bank of Cyprus huge offices in Agland...

English: Bank of Cyprus huge offices in Aglandjia suberb of Nicosia Republic of Cyprus (Photo credit: Wikipedia)

The S&P 500 Is The Likely Winner Of The Crisis In Cyprus

Some investors know that there is a certain potential element of opportunity lurking in almost every dark cloud. In the case of the recent restructuring of the Cypriot banking sector, this is most certainly the case. As the Cyprus banks reopen and money gradually trickles past the currency controls imposed to prevent capital flight, funds have to find a home somewhere else. Even if it takes months to gradually extract one's deposits, it is going to happen.

Since the EU financial authorities have already announced that the same sort of deposit-grabbing trick could be coming to other EU-area banks if need be, this makes it very unlikely that the funds currently in Cyprus will find a final haven in other European institutions. They may stop there on the way out of town, but the Euro has been shown to be a poor contender for the title of reserve currency. This almost certainly assures that US banks will be the ultimate repository of funds fleeing Cyprus and other ailing southern Euro-area countries.

While American banks have not been especially stellar components of the Dow or S&P 500 of late, the influx of formerly European deposits is likely to add some luster to the stock price of the mega-banks. The reason why this will happen once the Cyprus banks reopen for business is that few foreign investors know anything about American banks other than the "brand name" institutions. This is a mirror image of the fact that Americans probably never heard of any Cyprus bank before this crisis and could probably only name one or two monster banks on the other side of the Atlantic.

Funds will therefore flow to the handful of household names rather than to the Third National Bank of Little Rock, Arkansas or the Cattlemen's Bank of Colorado. Instead, it is the Bank of America, Chase, and Citi that are likely to see the pop in deposits and stock prices, which in turn should add a little something extra to the S&P 500 as an added bonus.

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