Money is leaking out of banks in
southern Europe as customers scoop deposits out of Greece, Spain
and Italy to move cash to less indebted nations such as Germany.
Greece (TODETOGR)’s total deposits plunged 28 percent from the peak in
June 2009 to 169 billion euros ($225 billion) at the end of
December, according to data compiled by Bloomberg. In Spain (TODETOES),
deposits slid 5 percent in the five months through November to
934 billion euros, the least since April 2008. Italian (TODETOIT) banks
held 974 billion euros in November, the lowest in 18 months.
Deposits in Germany (TODETODE) have climbed by almost 10 percent since
May 2010, when Greece was granted its first bailout. Deposits
have risen every month except five since the end of 2009, and
reached 2.15 trillion euros at the end of 2011, Bloomberg data
show. The deteriorating growth outlook in the euro region risks
exacerbating those flows, according to Dario Perkins, an
economist at Lombard Street Research in London.
“The biggest systemic risk is if people lose confidence in
keeping their euros in Spain, Portugal or Italy,” Perkins said.
“It makes sense to put your cash into Germany just to be safe
and that’s where the real systemic danger lies. That contagion
isn’t priced in, and bank deposits are the place we’d spot it.”
Recession Outlook
Investors demand a yield premium of 3.63 percentage points
to lend to Italy for 10 years rather than Germany, compared with
an average of just 1.3 points in 2010. Spanish yields, now 5.06
percent after peaking at 6.78 percent on Nov. 17, are 3.18
points higher than Germany’s.
Greek Finance Minister Evangelos Venizelos said Feb. 3 that
16 billion euros of the 65 billion euros of deposit outflows
since the end of 2009 have gone abroad. Venizelos said 32
percent of the 16 billion euros went to British banks and less
than 10 percent to accounts in Switzerland.
The 17-nation euro economy will contract 0.3 percent this
year, according to forecasts published yesterday by the European
Commission. Projected contractions of 1.3 percent in Italy and 1
percent in Spain undermined a November forecast of 0.5 percent
growth.
Bank deposits typically increase in December as people cash
in assets to raise money for Christmas and companies bank their
takings. In Italy, where some contracts call for workers to get
so-called thirteenth-month paychecks, deposits rallied by 3.9
percent at the end of last year to 1 trillion euros. In Spain (TODETOES),
customers banked an extra 0.9 percent, boosting the total to 942
billion euros.
Financial firms in Italy have sought to divert the flows
out of deposits by selling bonds, which typically pay higher
interest rates than current accounts. Funds held in bonds
increased 7.8 percent to 861 billion euros in December from a
year earlier, according to the ABI, the Italian Banking
Association.
Long-Term Funds
“As a system, we’ve preferred to offer a higher yield for
longer-term funding,” said Alessandro Santoni, head of
strategic planning at Banca Monte dei Paschi di Siena SpA,
Italy’s third-biggest bank. “The Italian banking system isn’t
particularly leveraged and now it’s deleveraging because
deposits are growing below the rate of inflation.”
Italian inflation rose at a 3.2 percent rate in January,
according to the national statistics office in Rome.
The decline in deposits has been most marked among
companies, Bloomberg data show. Since May 2010, when the first
Greek bailout was put in place, corporate deposits have dropped
31 percent in the country, while individuals withdrew 24 percent
of their funds. Companies also took cash away from other nations
in that period, including 21 percent from Ireland, almost 8
percent from Italy and 4 percent from Spain.
Competition for customer funding has intensified across the
region, prompting central banks in countries such as Portugal
and Spain to penalize banks that are too aggressive in pursuit
of customers’ money. In Spain, the regulator obliges banks that
“excessively remunerate” savers to make additional
contributions to deposit guarantee funds, while in Portugal the
central bank penalizes the capital ratios of lenders offering
deposit rates above set levels.
Portuguese Deposits
Portugal’s banks have succeeded in offsetting company
withdrawals by winning more retail business. Corporate deposits
peaked at 39.5 billion euros in December 2010 and were down 13
percent at 34.1 billion euros a year later, Bloomberg data show.
Household deposits increased by about 10 percent to 132
billion euros in the period. That’s because banks have jacked up
the interest rates they offer, said Andre Rodrigues, at Caixa-
Banco de Investimento SA in Lisbon. He estimates the average
rate the banks pay soared to 4 percent or more last year, up
from about 1.5 percent previously.
“They started to pay huge rates of interest so households
have been putting their money on deposit,” he said. “That
isn’t sustainable and I don’t expect it to continue in 2012.”
Company Caution
Declines in Spain and Italy picked up speed amid contagion
from Greece in the middle of last year. Company deposits slumped
11 percent in Spain from June to November, and in Italy by 6.5
percent, with multinational companies keeping as little money as
possible in the most-affected nations. For individuals, the
decline was less than 3 percent in Spain and about 1 percent in
Italy.
Vodafone Group Plc (VOD), the world’s largest mobile-phone
operator, moves cash from Greece to the U.K. every evening,
Chief Financial Officer Andy Halford said on a Feb. 9 conference
call. GlaxoSmithKline Plc (GSK), the U.K.’s largest drugmaker, started
repatriating cash held in most euro-area banks early last year,
said Chief Executive Officer Andrew Witty.
Paul Richardson, finance director of WPP Plc (WPP), the world’s
biggest advertising company, said Feb. 8 that WPP removes excess
euros from its banks in Europe and changes them for dollars
daily. Reckitt Benckiser Group Plc (RB/) also takes cash out of its
European businesses daily, CEO Rakesh Kapoor told reporters,
also on Feb. 8.
Rushing Back to Switzerland
Actelion Ltd. (ATLN), the Allschwill, Switzerland-based drug
maker, said in its annual report that as of Dec. 31 it was owed
209.5 million euros by public institutions in Greece, Italy,
Spain and Portugal, of which 60 million euros is more than a
year overdue.
Cash “comes back to Switzerland as soon as it can,” Chief
Financial Officer Andrew Oakley said in an interview, declining
to be more specific. “The situation in southern Europe got a
lot worse in the second half of the year.”
The combination of rising yield premiums investors demand
to lend to Italy and Spain rather than Germany, plus the shifts
in bank deposits between countries reflect the region’s multi
speed economy.
“Soaring bond yields and falling bank deposits highlight
what the periphery just isn’t able to do as part of the euro,”
said Alex Bellefleur, an economist at Brockhouse & Cooper Inc.
in Montreal. “Capital flight is a huge deal and it’s very
difficult to stem within an open-border currency union.”
To contact the reporter on this story:
John Glover in London at
johnglover@bloomberg.net
To contact the editor responsible for this story:
Mark Gilbert at
magilbert@bloomberg.net
Source Article from http://www.bloomberg.com/news/2012-02-24/bank-deposit-flows-show-money-leaking-to-germany-from-spain-euro-credit.html
