Now that Greece and the Eurogroup are back on the same page and "cooperating" to use a game theory term, and any attempts of Eurozone "defection", pardon the pun, by the Syrizia government have been postponed until the 4 month bailout extension runs out in June when the entire charade is set to repeat, it is critical for Greece to undo the mess that the Troika did when heading into the mid-February negotiations, the ECB did everything in its power to foment a massive bank run by spooking both banks and citizens that their funds may be Corzined, or otherwise capital controlled, thereby crushing any negotiation leverage the Tsipras government may have (just as we had laid out previously).
What we do know, is that it didn't take much, and sure enough in the month of January, Greek banks suffered the biggest deposit outflow in both absolute and relative terms in Greek history.
One can only guess how bad it must have gotten in February, when rumors of €1 billion daily outflows were a daily occurence, and when even the likes of Stratfor reported (incorrectly as per official denials) that one of the largest Greek banks, Piraeus had run out of cash into month end.
As a result, everyone in Greece is now in full-blown confidence rebuilding mode in a desperate attempt to restore some of the deposit outflows, which have pushed total Greek deposits back to 2005 levels, even though nothing has been resolved vis-a-vis long-term Greek sustainability. As the WSJ reported late last week, "according to one senior banking official, more than €800 million ($905 million) in deposits have been put back into the Greek banking system since Monday when Greece’s banks were closed for a public holiday. “We saw €700 million return on the first day and another €150 million yesterday,” the banking official, speaking on the sidelines of central bank conference, told journalists. “Things are going well.”
Maybe, or maybe this is just yet another attempt to play off the public mood, because while as recently as 2 weeks ago the western media was desperate to see lines in front of Greek ATMs to accelerate the Greek government's folding to the Troika's demand (which ultimately happened), now it is just trying to talk back some of these destructive, confidence-crushing innuendos.
To be sure, the WSJ noted as much: "But, in fact, the money that has dribbled back since last Friday’s deal, pales in comparison with the amount withdrawn in the past three months, say analysts, and it will take several months of inflows to confirm that the trend is here to stay. And, if past experience serves as precedent, many of the deposits that have left, may never come back."
“These figures are a good starting point but a reversal of this trend will take a few more quarters to appear,” said Nikos Magginas, a senior economist of National Bank of Greece . “People are waiting for more signs of stability, such as the successful review of the country’s reforms program. Two to three more supportive events are needed to secure this stability but this takes time.”
There is an even less pleasant possibility: namely that Greek bankers and media outlets, knowing just how close they are to total collapse if the deposit outflow continues, which itself is a function of confidence in the local financial system (or lack thereof), even as the ECB refuses to grant Greece any further funding, are simply lying.
This is the possibility articulated, in more politically correct phrasing of course, by JPM's Nikolaos Panigirtzoglou, in his latest "Flows and Liquidity" piece:
Our daily proxy of deposit outflows based on the purchases of offshore money market funds by Greek citizens, which is one way for Greek citizens to deploy their withdrawn deposits, was €64m this week (Mon to Thu), sharply lower than the €153m during the previous week (between Feb 13th and Feb 20th), €104m during the week between Fed 6th and Feb 13th, and €62m between Jan 30th and Feb 6th. While it is encouraging that the latest Eurogroup agreement with the Greek government caused a sharp decline in deposit outflows this week,our deposit outflow proxy suggests that Greek banks have not stopped bleeding. This is inconsistent with the statement by the Greek finance minister that €700m returned to Greek banks after Eurogroup’s deal.
So yet another accusation, as diplomatic as it may have been phrased, that Varoufakis lied. There seems to be quite a few of those lately...
Of course, maybe Varoufakis did not lie: he simply forgot to let the European Commission check the math (they seem to do a good job of at least converting his doc files to pdfs).
It is possible that the rise in retail deposits referred to by the Greek finance minister included the month-end payment of pensions which typically results in a transfer of bank deposits from government organizations to households.
So what does the math come out to?
What do the above offshore money market fund purchases imply about Greek bank deposit outflows? The rule of thumb we used before based on December flows was that each €100m of purchases of offshore money market funds are associated with around €3bn of deposit outflows. January data point to a somewhat lower ratio with €562m of offshore money fund purchases corresponding to €12bn of deposit outflows. Applying January’s proportionality to February, we calculate that the €292m of purchases of offshore money market funds in February were associated with bank deposit outflows of around €6bn. This week’s €64m of purchases of offshore money funds mechanically point to deposit outflows of around €1bn.
In other words, if JPM is correct, not only did the January outflows not cease in February, but what's even worse, is that in the last week of the month, when after the "deal", people would feel confident enough to return to their banks, another €1 billion of deposits were withdrawn. In total, this means that Greek deposits will have fallen to just about €140 billion as of today - the lowest level since March of 2005.
Worse, assuming an NPL ratio of around 40%...
... the continued deposit flight suggests that Greek banks indeed have at most a few days of cash left, and the Cyprus "blueprint" scenario is increasingly likely, unless the ECB either boosts its ELA allotment for Greece, or once again allows Greek debt to be used as collateral in ECB operations. So far, the ECB has been mum on the possibility of either of those.
All of this, of course, assumes that Greece somehow manages to get its already unconfident citizens to resume paying taxes, or else the government will have no remaining cash with which to either run the country or repay the IMF's significant loan maturity in March, which as we preciously noted, is an increasingly possible outcome.
In short: assuming JPM's math is accurate, not only is Greece not out of the woods despite the "bailout extension deal", but the woods are getting darker and more deadly with every passing minute.
No comments:
Post a Comment