Spanish & Greek Bank Deposits

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Reuters – Money flies out of Spain, regions pressured
Spaniards alarmed by the dire state of their banks are squirreling money abroad at the fastest rate since records began, figures showed on Thursday, and the credit ratings of eight regions were cut. Spain is the next country in the firing line of the euro zone’s debt crisis, with spendthrift regions and shaky banks threatening to blow a hole in state finances and pushing funding costs towards levels that signal the need for a bailout. The European Commission gave new help on Wednesday, offering direct aid from a euro zone rescue fund to recapitalize Spanish banks and more time for Madrid to reduce its budget deficit. That helped lower the risk premium investors demand to hold Spanish 10-year debt rather than the German benchmark on Thursday, but it remained close to the euro-era record, at 520 basis points. Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad last month, the most since records began in 1990. The figure compares to a 5.4 billion net entry of funds during the same month one year ago.

The Financial Times – Spain reveals €100bn capital flight
Madrid was dealt a double blow on Thursday after it emerged that almost €100bn in capital had left the country in the first three months of the year and the head of the European Central Bank lambasted its handling of Bankia, the troubled Spanish lender. Data published by Spain’s central bank showed €97bn had been pulled out in the first quarter – around a 10th of the country’s GDP – as concerns mounted over Madrid’s ability to contain its twin economic and financial crises, which have forced government borrowing costs to euro-era highs.

The Independent (UK) – Spain told to get a grip of bank crisis as bailout looms large 
ECB chief launches broadside at indecisive government as panic takes hold in Madrid and Rome
Last week the Spanish government announced plans to inject a further $19bn into Bankia, the country’s fourth largest lender, which has been crippled by bad loans to the nation’s collapsed property sector. An independent audit of Spain’s banks, which are estimated by some analysts to be stuffed with more than €100bn of bad loans, is underway and will report next month. The audit is widely expected to announce that many of Spain’s other lenders need significant capital injections too. The fear of investors is that the Spanish government will be unable to afford to rescue its banks, forcing the country to apply for help from the €500bn European bailout fund and the IMF. Earlier this week Spain floated a plan to shore up Bankia by issuing the bank directly with its own sovereign bonds, which would allow the lender to swap these securities for euro loans at the ECB. But the ECB said earlier this week that it had not been consulted on any such plan. Analysts have also pointed out that this would merely make Spain’s banks more vulnerable by tying their fate even more closely with a Spanish government that is in danger of being frozen out of the capital markets.

The Economist – The euro crisis: How to save Spain
The focus should be on fixing the banks, not on cutting the deficit
GREEK politics may determine the euro’s short-term future, but it is Spain that poses the single currency’s most difficult problem. The euro zone’s fourth-biggest economy is caught in an increasingly desperate spiral of deepening recession, drowning banks and soaring borrowing costs. Spanish firms and banks are all but cut off from foreign funds. On May 30th yields on ten-year sovereign bonds rose above 6.6%, close to the level at which Greece, Ireland and Portugal had to seek a bail-out. After the government’s botched nationalisation of Bankia, a troubled savings bank, Spanish depositors are jittery (see article). A bank run is all too plausible—especially if Greece, which is bracing itself for a fresh election on June 17th, is forced out of the euro soon. Even if that calamity is avoided, Spain’s slump will drag the country inexorably towards insolvency.

The Economist – Spain’s banking system: Teetering 
Spain has avoided facing up to its banking problems. Now it has no choice
The burning question is whether the scale of Bankia’s hole provides clues about the state of other weak lenders. True, Bankia had the biggest property exposure in Spain, not least in Valencia on the Mediterranean coast. That region is home to CAM, a failed savings bank dubbed “the worst of the worst” by Miguel Ángel Fernández Ordóñez, who this week brought forward his exit from the post of Spain’s central-bank governor. Bankia also made risky loans to low-income immigrants. And at least €6.6 billion of the cleanup relates to industrial stakes and tax assets. But Bankia’s assumptions on the rate of non-performing loans in areas such as residential mortgages and corporate loans set a disturbing new benchmark for other lenders. It seems highly likely that an external review of Spanish banks by two consultancies, whose initial findings are due later this month, will find more holes.

Comment

The chart above is current through April.  As mentioned with Greek bank deposits below, the real outflows did not begin until May as a by-product of the Greek election results on May 6.

Source: Bianco Research

Greek Bank Deposits

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City AM – Greek banks see deposits shrink as customers lose confidence
TWO of Greece’s biggest banks reported a shrinkage in their deposit bases yesterday as worried consumers continue to withdraw cash from the lenders. Piraeus and National Bank of Greece (NBG) lost deposits in the first quarter of this year. Piraeus said its deposit base shrank by 24 per cent year-on-year to €20.9bn. At NBG, deposits fell by €2.3bn, with its loans-to-deposits ratio at 111 per cent. NBG made a heavy loss in the first quarter and rival Piraeus also lost money as the country’s recession sapped clients’ ability to pay back loans and hit new business. The banks are having to eat into their own profit margins by paying depositors higher interest rates to discourage them from withdrawing their funds, a tactic that squeezes the net interest income they earn.

Comment

It is important to note that this data is only current through the end of April. The real panic did not even begin in Greece until after the May 6 elections when Tsipras announced all previous bailout negotiations should be considered null and void. This shook the confidence of most Greeks and, if anecdotal evidence is to be believed, the real bank run began throughout May.

Source: Bianco Research

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