We were pleasantly surprised earlier today when we discovered that the "head of European rates" at RBS, or as it is better known in the US as CRT LLC (see here, here and here), Harvinder Sian, not only sends out mollifying notes to clients with extended references to "excitable" blogs such as Zero Hedge, but that apparently cost-cutting measures have forced RBS to cancel their over-budget Dow Jones wire service.
Our good friends at Alphaville, who it turns out are the first and last (and also somewhere in the middle) to diligently comb through RBS research, point out this amusing note that was sent out earlier (emphasis from the original):
The Greek rumour mill today centres on risks for the banking sector. The website Zero Hedge carries a rather hysterical story that “Greeks Scramble To Pull Out €8 Billion From Local Banks As Greece Responds With Money Control Measures”.
The central point of the article is that private bank customers have pulled €8bn out of Greece in a combination bank accounts, stock sales, property sales and other sources. It then asserts (wrongly, see below) that this is a ‘plain vanilla run on the bank’.
Let’s walk through it . . .
IS THIS TRUE?
The quotes attributed to private bankers (€8bn outflow etc) are not sourced but that is usually the case. We have heard of some ship owners for instance moving assets to Cyprus and Switzerland too, so this part of the story is not far fetched. The key point however is not the health of banks here but that the money and asset transfers are A MOVE TO AVOID HIGHER TAXES.
So, just in case you missed the point (it also appears that cost-cutting has also eliminated double underlining of text when trying to overemphasize a point) the premise is that there is no bank run, and it is all done to avoid taxes. Get it?
So, let's go back to the original Dow Jones article which we sourced, and which RBS apparently did not have access to:
Once again, for the government-subsidized seats, it starts off as follows:
Wealthy Greeks have moved around EUR8 billion out of local banks in the past three months fearing a possible new tax on bank accounts, increased government scrutiny on assets and a run on the banks if Athens is forced to turn to the International Monetary Fund, according to private bankers and other people with knowledge of the situation.
So yes, while CRT's RBS' CAPS LOCK FULLY BOLD TEXT would like to draw your attention to one component of the gentle and timid withdrawal of €8 billion in deposits, two of the other considerations would tend to imply that there may be something more to this than the bank which is allegedly loaded to the gills with PIGGS exposure would want you to believe.
Continuing with the Dow Jones' own quotes, the agency quotes several people who seem to have a slightly less sanguine opinion on matters:
"There is a lot of uncertainty out there," said a senior private banker at a Greek bank.
"We've had a number of customers asking to move funds out of Greece, mostly to Cyprus, Luxembourg and Switzerland."
"We estimate that EUR8 billion has moved out of Greece to accounts abroad since December. It's money from bank accounts, stock sales, property sales and other sources. This is pretty substantial considering that there is only EUR30 billion under management in private banks here"
"Some of our clients are concerned about a run on the banks if the IMF gets involved," said another private banker, this one from a foreign bank. "They believe the situation in Greece will get worse before it gets better. There is also very little clarity from the government about its intentions on new tax measures."
Of course, RBS would never see a scenario in which the IMF would get involved (despite extended "technical" IMF delegations on the ground currently), and thus precipitate the gating factor for what Greece-based finance professionals, who, with all due respect, have just slightly more credibility than analysts at conflicted semi-nationalized banks. Lest we forget, a recent back of the envelope analysis indicates that the UK (which incidentally is a 70.33% holder of RBS) has quarter of a trillion pounds exposure to the PIIGS, of which no matter how you spin it, Greece will be the first domino. So yes, we tend to take any RBS analysis with just a little shaker of salt. And what an analysis it is:
IMPLICATIONS FOR BANKS FROM THIS MONEY/ASSET MOVE?
Very little. Let’s start off by saying that Greece has a sovereign debt problem that is hitting the banks. The banks themselves started the crisis in fairly robust condition and to date there is absolutely NO EVIDENCE OF A DEPOSITER [SIC] RUN.
Yet going back to the top, keep in mind that RBS' primary observation is that all the money moves over the past three months have been done in order to AVOID HIGHER TAXES. We seem to have a slightly pedantic, if undergraduate, understanding of Einstein's Theory of Relativity as pertains to time travel, but it does strike us a little perplexing from a purely chronological perspective how Greeks in December and January could have been pulling money in advance of such notification. Namely:
Finance Minister George Papaconstantinou earlier this month [as in February] urged Greeks with accounts abroad to repatriate their money and said the capital will be taxed at a 5% rate. He said those who choose to keep their money abroad should declare their deposits and pay a tax of 8% for the first six months. Thereafter he threatened that Greece will use all laws at its disposal, such as double-taxation agreements, to ask foreign banks for information on Greek account holders.
And just to get the Greek perspective, instead of the 70.33% point of view of the UK, here is the last relevant bit from Dow Jones:
"For us this is the first step towards taxing all accounts in Greece," said the chief financial officer of a major Greek shipping company. "The line is minimum deposits here and moving all assets abroad." "Money will flow back into Greece when the situation returns to normal. This won't happen for at least a year and there is not a lot of trust for the Greek banking system right now," he added.
We are confident that with RBS' amazing approach to chronology they should now be able to go back in time and advise themselves on how to avoid listening to their own advice, and instead of going bankrupt, pardon, being bailed out, and arguing over semantics, continue to grow and flourish, without making the the UK taxpayer just 70.33% pregnant with a morass of toxic assets.
We will, however, acknowledge, that our estimate of money multiplier effects on deposits was grossly exaggerated. Obviously, the full impact of €8 billion in deposits getting withdrawn via fractional reserve multiplication would be vastly more substantial only in a world in which Central Bankers, such as Mr. King, were not engaged in gross monetary policy manipulation. We do stand corrected by RBS' much more practical realization that courtesy of QE (which in England, it appears, will be extended shortly after the economy confirms it has relapsed) and excess reserves, two concepts which have so far allowed RBS to survive whereas othersie Mr. Sian and all his colleagues would have long been unemployed, the money multiplier collapses, and in countries such as Greece and the UK, central bankers are happy if it stands at anything above 1.
Which is why, just like RBS, we urge our readers to completely ignore the fact that an €8 billion bank run kind and nurturing deposit withdrawal in a country of 8 million is anything even barely relevant, and if possible, please, PLEASE, not only read much more RBS research, but any time that an CRT RBS fixed income salesperson calls and offers to offload some of the bank's inventory of PIIGS bond holdings, that you should do so with no questions asked.
After all, who can possibly mistrust RBS?
An artist's rendering of timid, peaceful future Greek non-bank runners.