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Barclays, Lloyds, and Royal Bank of Scotland Head Lower As Cypriot Bank Tax Hits FTSE 100

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LONDON -- The shares of leading U.K. banks fell during early London trade this morning following news that Cyprus had implemented a bank levy that would charge depositors up to 10% of their savings.

Barclays  (LSE: BARC  ) (NYSE: BCS  ) slid 11 pence to 309 pence, Lloyds Banking  (LSE: LLOY  ) lost 1.3 pence to 49.2 pence while Royal Bank of Scotland  (LSE: RBS  ) (NYSE: RBS  ) dropped 10 pence to 298 pence as investors responded to a fresh wave of eurozone debt fears.

The FTSE 100 index dived 62 points to 6,427.

The Cypriot bank levy is part of a wider, 10 billion-euro bailout negotiated by the Mediterranean island with the European Union and International Monetary Fund over the weekend. Cypriots with up to 100,000 euros in their accounts will pay 6.75%, while those with more face a 9.99% charge.

In return, Cypriot savers will receive shares in their bank. 

Savers with deposits in the U.K. arms of Cypriot banks are reportedly unaffected by the levy. The U.K. government has also pledged compensation to any U.K. military personnel that suffer a charge.

The news from Cyprus may well test the resolve of U.K. bank-sector shareholders, who have enjoyed racy returns since the summer of last year.

Indeed, from trough to peak during the last year or so, the shares of Lloyds have lunged from 25 pence to 55 pence, RBS has rallied from 196 pence to 366 pence while Barclays has bounced from 151 pence to 327 pence.

Within it latest results, Lloyds said its total asset exposure to Cyprus had dropped from 210 million pounds to 104 million pounds during 2012. In addition, the 2012 figures from RBS showed its exposure to the island falling from 438 million pounds to 377 million pounds.

Meanwhile, last year's numbers from Barclays showed Cypriot assets reducing from 316 million pounds to 300 million pounds.

Overall, the exposure to Cyprus looks relatively small when each of the three banks reported group risk-weighted assets of more than 300 billion pounds.

Of course, whether the deposit levy in Cyprus will prompt wider banking problems within the rest of the troubled eurozone -- and create further selling pressure on U.K. bank shares -- is something nobody can really determine right now.

But if you already own your fair share of bank shares and are looking for a less volatile investment right now, this exclusive in-depth report reviews a solid, predictable alternative within the FTSE 100.

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