Sunday, December 18, 2011

As run on European banks intensifies, Europeans move money elsewhere

A Wall Street Journal article describes at length the ongoing run by depositors of banks in Europe's trouble periphery.  What is new in this article is rather than just move their funds to Germany or Switzerland, they are looking to move their money out of the Eurozone altogether.
Southern European investors, fearful of the health of their banks and the future of the euro, are increasingly stashing their wealth in currencies, real estate and investment products outside the euro zone, say bankers and government officials. 
In a troubling sign for European banks, investors in Greece, Portugal and Italy are asking bankers and lawyers for ways to protect their money in the case of a failure of euro-zone banks or a breakup of the euro itself. 
Some are converting deposits into currencies such as the Swiss franc. Others are buying real estate outside the monetary union, such as in London, or setting up trusts to hold their wealth in jurisdictions as distant as Singapore or the Bahamas, say bankers and lawyers....
As a result, the capital flight is likely to continue and could intensify, say experts. "Clients such as white-collar professionals and business owners see a risk in the Italian banking system," says Andrea Cingoli, chief executive of Banca Esperia, a Milan private bank with €13.5 billion ($17.6 billion) under management. "As a result, they are looking at their options overseas." 
With the exception of Greece, the amounts still are relatively small, but the risk of a bigger exodus remains high. "Are we going to see significant outflows of money from these countries? Not yet," says Marcello Zanardo, a London-based analyst with Sanford Bernstein. "But the line is very thin and the atmosphere is tense." 
In Italy, the sharp escalation of fears over the country's fiscal woes and jitters over the liquidity crunch facing Italian banks have driven investors in recent weeks to Switzerland, whose franc has soared this year as investors seek a refuge from the euro-zone crisis.... 
Elsewhere, capital flight from Greece is intensifying. Since the start of Greece's debt crisis in late 2009, Greeks have pulled more than €60 billion of cash—about a quarter of total deposits—from their banks. Between September and early November, those outflows totaled nearly €14 billion, representing two of the worst months for deposit outflows since the start of the crisis.
According to the Bank of Greece, about a fifth of deposits withdrawn in the first nine months of this year went abroad. One senior executive at a Greek bank said his group has seen a pick-up in transfers of money abroad over the past six weeks. 
London real estate also is luring spooked euro-zone investors. Purchases of central London residential homes by Greek nationals have tripled in the last year at leading agent Knight Frank, according to Liam Bailey, the firm's head of residential research, while Spaniards' acquisitions have doubled.... 
Southern European investors are also seeking investment products that minimize their euro-zone risk, but without sending money abroad. Demand for safe-deposit boxes is up this year in Portugal, bankers say, as depositors seek alternatives to accounts, which can be frozen in case the country goes bankrupt or exits the euro. 
Banks—already fearful of a drain on deposits—are obliging in other ways. 
Banks in Portugal, including Deutsche Bank AG's local offices there, are offering clients equity funds registered in Luxembourg or depository accounts in currencies such as the Swiss franc, U.S. dollar or Japanese yen. 
In Italy, a new product from Deutsche Bank that tracks gold has met strong demand in recent weeks. Greek banks are proposing foreign government bonds or even allowing customers to deposit their euros in a subsidiary of the same bank outside of Greece.
"The country risk in Greece is the problem—far greater than the currency risk," says one Greek banking executive.

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