Despite all the fear-mongering by Nea Demokratia (ND), Syriza's victory over the incumbent is dramatically larger than expected (exit polls indicate a potential 12 point margin vs 7 point spreads in the run-up). However, as JPMorgan details, the fear-mongery was very evident in bank deposit runs as proxied outflows surge EUR8 billion last week - more than all of December and the rest of January combined...
Via JPMorgan Flows & Liquidity
Greek deposit outflows rise sharply this week
The monthly Bank of Greece balance sheet data for the month of December revealed a significant increase in Greek bank ECB borrowing which rose by €11bn in December to €57bn (including €1bn of Emergency Liquidity Assistance). This is more than the €3bn deposit outflow reported for December. It is thus likely that Greek banks had to borrow even more in December to offset not only their lost deposits but likely reduced access to private repo markets, as it happened before during Greek crisis.
The approval this week by the ECB of additional ELA is encouraging. According to reports, not only did the ECB give its approval for Greek banks to borrow more funds via ELA but it also opened the door for ELA to continue post the expiration of the Greek bailout program on Feb 28th with only two conditions: that Greek banks are solvent and that they have enough collateral, i.e. the ECB did not condition ELA on the continuation of the Greek bailout program after Feb 28th.
As of December 2014, Greek banks had borrowed only €1bn via ELA but had a lot more collateral. The collateral that was posted with the ECB at year-end was €23bn which, assuming it includes mostly credit claims with a 50% average haircut, would be enough for Greek banks to borrow €11bn via ELA, i.e. an additional €10bn on top of the €1bn they had already borrowed by year-end. Greek banks have a lot more of credit claims, more than €100bn, to raise their ELA borrowing by even more if needed in February or beyond.
We argued in recent weeks that one indirect way of gauging the pace of bank deposit outflows in Greece on a high frequency basis is to look at the inflows into offshore money market funds such as those based in Luxemburg. Purchases of offshore money funds, one way for Greeks to invest their withdrawn bank deposits, spiked to very high levels this week. These purchases totaled €206m during Mon-Thu this week vs. €91m over the previous week (between Jan 9th and Jan 16th), €54m in the week before (between Jan 2nd and Jan 9th), and €107m for December as a whole (€24m per week between Dec 1st and Jan 2nd).
So there is a sharp acceleration this week. If the €3bn deposit outflow reported by the press for the month of December is accurate and these offshore money market purchases are a good proxy for deposit flows, we should have seen deposit outflows of around €4bn in the first two weeks of January and a large €8bn deposit outflow this week alone.
The fear factor, New Democracy’s biggest weapon, has thus risen sharply this week [and clearly backfired].
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What do Greeks do with the funds they withdraw from banks? It appears they keep it under the “mattress”.
[3]
The quantity of banknotes placed into circulation by the Bank of Greece has increased significantly, by €2.2bn in December, suggesting that more than 70% of withdrawn Greek deposits went under the mattress. Figure 2 above also shows that of the €27bn of cash that went under the “mattress” between end of 2009 and mid 2012, only half has re-entered the Greek banking system.
