Egyptian Pound Plummets As Egyptians Get Their First Taste Of A Bank Run

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Today, for the first time in two weeks, the Egyptian banking system will be open, and the result: huge lines and a very possible bank run at the 200 or so banks which the Egyptian central bank announced would be open between 10:00 am and 1:30 pm today. And just to make things a little bit easier (yet harder) on itself, courtesy of a withdrawal limit of 50,000 Egyptian pounds and $10,000 a day, depositors will take out the max which should promptly deplete bank stores, and also set the population on edge, which withdrawal limits tend to do virtually everywhere. Also, the Egyptian central bank, which has one upped Blackhawk Ben, and been restocking through a military cargo plane, will soon need a far bigger one: "The central bank moved 5 billion pounds ($854 million) of
cash into the financial system as depositors gained access to
their savings. The regulator, which has $36 billion in reserves
and guarantees deposits, used military cargo planes to bring in
the funds, Governor Farouk El-Okdah said yesterday on state-run
television." And another lesson Egypt has learned from both the US and the EU: mask any smell of insolvency with that truty old pyramid scheme known as bond issuance: "The government plans to sell 15 billion pounds in treasury bills tomorrow after canceling last week’s auction as protests against Mubarak intensified. Yields on Egypt’s bills may surge about 30 percent, said Shahinaz Foda, the head of treasury at BNP Paribas Egypt."

More from Bloomberg:

Egypt’s stock exchange will remain shut until at least Feb. 8, communications manager Hisham Turk said in a telephone interview today.

The central bank postponed the sale of 4 billion pounds planned for Jan. 30 after raising 2.5 billion pounds on Jan. 27. The average yields on the sale of 182-day bills jumped 40 basis points to a one-year high of 10.6 percent, according to data compiled by Bloomberg.

The bank plans to auction 8 billion pounds in 91-day bills, 5 billion pounds in 182-day bills and 2 billion pounds in 273- day bills, according to data compiled by Bloomberg. The bank will announce the results Feb. 8, Deputy Governor Hisham Ramez said yesterday.

Yields on three-month treasury bills should be “not less than” 12.5 percent in upcoming auctions, up from 9.5 percent last month, Cairo-based Foda said yesterday. The yield on the one-year bills may climb to 14 percent from 10.6 percent, she said.

Yet even revolution-torn Egypt refuses to proceed with the kind of fiscal largess that is the only thing that the Obama administration is known for 2 years in:

In an attempt to placate the protesters, newly appointed Finance Minister Samir Radwan reiterated yesterday that the government won’t reduce subsidies even if global prices of food and commodities rise. Public spending will be used as a tool to “achieve social justice,” he told a news conference in Cairo.

An increase in public spending may push the budget gap to “double digits” in 2011, compared with 8.1 percent in the fiscal year that ended in June, rating company Standard & Poor’s said last week after lowering the country’s credit ratings a notch to two levels below investment grades. Fitch Ratings and Moody’s Investors Service also cut Egypt’s ratings.

The unrest sent the yield on the country’s 5.75 percent bond due in April 2020 to a record 7.2 percent on Jan. 31. The yield has dropped 62 basis points since and ended the week at 6.59 percent. The cost of insuring Egypt’s debt for five years with credit-default swaps soared to 430 basis points on Jan. 28, the highest since April 2009. They closed at 380 on Feb. 4, CMA prices in London show.

So no subsidies, even though most grains continue to trade limit up? In that case can we just call this attempt at halting the revolution what it really is: half time?

As for that bank run:

Radwan said Egypt will honor its debt obligations and urged foreign investors to have confidence in the country. “All the bond obligations, everything will be honored on time,” Radwan said in a Feb. 4 telephone interview from Cairo. “We are not defaulting on any obligations.”

Banks held 937 billion Egyptian pounds in deposits in November, according to preliminary data published on the central bank’s website. Of that, households held 505 billion pounds, while private companies held 124 billion, the data show. The country’s banks have an average loan-to-deposit ratio of about 53 percent, Mohamed Barakat, head of the banking association, said in an interview on Jan. 30.

At least Ben Bernanke can sleep soundly, knowing that non-USD denominated currencies, and therefore those under which he has absolutely no control, are about to take the fall for his monteray policies.

Egypt’s three-month non-deliverable pound forwards strengthened 0.2 percent to 6.325 per dollar on Feb. 4 from 6.34 the previous day, according to data compiled by Bloomberg. The contracts reflect bets the currency will weaken 7.4 percent in three months from the spot rate of 5.8570. A drop in the pound may prompt the central bank to intervene, John Sfakianakis, chief economist at Banque Saudi Fransi Credit Agricole Group, said in a note Feb. 3.

“Over the short term we expect the Egyptian pound to fall by 20 percent, which would require the central bank to intervene on several occasions,” he wrote. “The drawdown in reserves would be a crucial factor in supporting the Egyptian pound, but increased political tensions, a run on local banks as well as expected dollarization of some of the deposits will impact the short-term currency outlook.”

The central bank doesn’t have a target range for the pound, Ramez told CNBC Arabiya today. The central bank intervenes in “rare” cases, he said.

Expect many more "rare" cases over the next few weeks...