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Thursday, October 16, 2008

Russia: First Bank Run

The first bank run in Russia…

Run on Russian bank heightens fears: “Globex on Wednesday banned depositors from withdrawing their money as confidence in the Russian banking system began to show signs of ­evaporating.

Globex, a mid-sized retail bank with assets of $4bn (€2.95bn, £2.32bn), is the first Russian bank to experience a run on deposits during the crisis. It lost 13 per cent of its deposits last month, according to Maxim Raskosnov, an analyst at Renaissance capital, and a further 15 per cent this month according to Emilya Alieva, Globex’s vice-president.

At least a dozen other Russian banks have reported a sharp rise in withdrawals and account closures.

An economist with a leading western bank in Moscow said Globex was probably the first in what could be a number of bank panics, if the government did not take concerted action soon. “I think there are a large number of small and medium sized banks that are in the same situation,” she said.

Despite a Kremlin promise of $200bn in relief funds – $87bn this week – the fall-out of a stock market plunge and the global credit crunch appears to be worse than anticipated, analysts say.

So far, the crunch has not affected the living standards of ordinary Russians, but a rash of bank failures could.

Banks across Russia have faced a rise in outflows as depositors have begun to lose trust in all but the biggest state banks, VTB and Sberbank, which have received most of the government’s liquidity support.

Tatyana Sadovskaya, the director of a branch of Khnati Mansisk Bank in the city of Nizhnevartovsk, on Wednesday told Interfax news agency that in response to rumours of her bank’s insolvency: “People have formed long lines at cashiers and at bankomats, people are taking their deposits and closing their accounts.”

Natalia Elisseva, vice-president for financial development at the Bank Nizhni Novgorod, based in the city of the same name, said the number of clients closing accounts had risen. “If there is something that can sink the banks, it is panic amongst the population . . . If there is a panic, not one bank will stand, regardless of state support.”

Mr Raskosnov said Globex was in an especially difficult situation, as a high concentration of its lending was in property, one of the sectors most under pressure from the credit crunch. He said the bank was also not rated by a leading credit rating agency, the prerequisite for central bank funding.

Globex confirmed that the ban on withdrawals had been in effect since Tuesday and blamed “demand from depositors, many of whom explained their wish to transfer their money to VTB or Sberbank”.

So far in the past two months three Russian banks have been forced into mergers as a result of the credit crisis, and analysts expect more consolidation.

Russia’s central bank made no public mention of Globex crisis, sparking criticism from ­analysts.

Alexander Khandruyev, head of the association of regional banks and former deputy central banker, called on the central bank to act immediately to allay depositors’ fears. The central bank, he said, “needs to put out the fire now and sort out who is guilty later”.

“They have delayed and delayed, and it only means the longer they leave it the more it is going to cost when they do have to rescue the banks,” he said. “If another day goes by it could happen in other banks. I don’t know what the central bank is thinking of.”


Anonymous said...

Brazil did better staging a bank workers class strike demanding higher wages.

Since demands are unreasonable there is no agreement and the strike can go on for as long as needed to avoid bank runs. Withdrawals are mostly limited by what is available inside ATMs, which I believe are refueled to avoid angry customers and keep support "for the cause".

Anonymous said...

Hmmm those clever Brazilians.

Anonymous said...

what i dont really get is that EEM/EEV should be at lower/higher levels today....seems they follow the usa market closer than the emerging markets. i quit trading fxp because is didnt track worth crap and EEV did but now it looks like EEV is seriuosly off tracking. we should be around the $200 level and we are at $150................

Emini Addict said...

I wonder how much of the overseas market are dominated by American investors.. Anyone know? Is that kind of data even out there?

Jonny said...

I'd expect Putin to use this crisis to gain ever more control over "his" banks by threatening no help for thoise who don't play ball, no?

anon., how are you calculating? Toro at Running of the Bulls had a similar post about one of the ETF's and a reader helped him better understand the correlation and why it didn't look right. It was in the last couple weeks, may help.

Anonymous said...

jonny - from a purely mathematical standpoint, a 2x inverse etf should (on a daily basis) match proportionally the underlying index it is based on. i dont need to know the mechanics because if they are done properly it will just work. graphicly the 2x should mirror the underlying index, adjusted as to 1x or 2x.
if you contact proshares they will thro the 'on a daily basis' in your face but if you compare the daily percentages the inverse etf is many times off.

also the amount of divergence is usually skewed so that when the inverse should be up 4% it is only up 3% and when it is down 4% it should have only been down 3%!!! you are penalized in both directions.

you cant beat the returns, i made $45 a share over the last several days (in eev) but it can get to be more of a gamble or coin toss when tracking gets too far off.

fxp got so bad that at one point it would go down on days fxi was also going down!

look at fxp in april2008 and look at the price today(oct2008) gain. look at any asian index (which fxp is supposedly loosely based) and they are massively down. i understand the 'daily' bit but it is like fxp resets to zero every day.

now look at eev and eem from april/oct2008. for one thing you could have actually held the stock and made money but also if you put both eev/eem on the same chart or flip eem...they mirror each other very well....but since the short selling ban the tracking has been off........on all the inverse not just skf even thou they were exempted.

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