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Russian Banking System Teetering, Accelerated Withdrawals Underway

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The Financial Times reports that the freeze on depositor withdrawals at Russian bank Globex is leading to high levels of withdrawals at other Russian banks, which doesn’t qualify as being a run…..yet.

From the Financial Times (hat tip reader Michael):

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.”

From a later FT article “The East is in the red“:

Across central and eastern Europe, the global crisis is biting hard, albeit very unevenly. In Russia, the authorities have set aside nearly $200bn (£116bn, €149bn) for a financial market rescue, Ukraine is in talks with the International Monetary Fund over emergency loans of up to $14bn, Hungary was on Thursday bailed out with a €5bn ($6.7bn, £3.9bn) loan facility from the European Central Bank.

Latvia and Estonia are suffering the region’s first recessions in a decade, while growth in oil-rich Kazakhstan has slowed to a crawl. Even in Poland, where Donald Tusk, the prime minister, insists his country is “an island of stability”, the crisis has raised doubts about Warsaw’s euro entry plans.

Stock markets have plunged accordingly, with Polish shares trading at less than half their peak levels and Ukraine’s down by three-quarters. Property markets have slowed, even if developers are still trying to hold up prices. After riding high earlier in 2008, some currencies have come under pressure, notably the Hungarian forint. In Ukraine, where the central bank has intervened to support the hryvnia, the credit default swap rate, a risk measure, has soared 1,400 points to 1,900, among the world’s worst.

The financial whipsaw has cut billionaires down to size, not least Oleg Deripaska, the Russian metals oligarch, who has sold valuable stakes to raise cash. Others are grabbing opportunities to buy cheaply: Mikhail Prokhorov, the Russian nickel investor, acquired 50 per cent of Renaissance Capital, a Moscow bank, for $500m – about one-quarter of its value of a year ago.

With the global crisis still raging, despite the calming effects of this week’s support moves in the US and the European Union, it is impossible to predict how events will play themselves out in a region increasingly important to the west as an export market and low-cost production base. But hopes it might escape unscathed have evaporated. Apart from corporate casualties, some countries could run into difficulties funding current account deficits. Erik Berglof, chief economist of the European Bank for Reconstruction and Development, says: “There is enormous uncertainty right now . . . These countries could deal with rising borrowing costs and an economic slowdown coming from the US and western Europe, but a complete shutdown of international borrowing – nobody can withstand that.”

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11 comments

  1. Anonymous

    If I were a journalist, I’d be sure to add a clarifying phease after the name of that Russian bank. As in “depositor withdrawals at Russian bank Globex (no relation to CME’s Globex).”

    We don’t want to wake up tomorrow and read about a run on the Chicago futures clearinghouse.

    Because these days, any crazy damned thing can happen.

  2. Yves Smith

    I haven’t seen any journalist making that distinction, (I just did a Google news search, and in addition to the FT references above, MarketWatch, the Economist, the FT, McClatchy all do not mention the CME Globex). Frankly, I think news stories about Russia’s financial markets appeal to only a small subset of readers.

  3. aw70

    To me as an European, this news is more worrisome than most postings in the past two weeks. Ever since an immediate meltdown was averted last week by the haphazard, but somehow at least partially effective actions of the U.S. and EU governments (hey, they WERE effective to some degree – no meltdown so far), things have been looking, well, not good in any sense of the word, but at least not completely terrible.

    If Russia were to perform a meltdown in its own right, though, there would a) be little that the west could do about it, given the country’s recent isolationist stance and b) it would probably cause a lot of grief in the U.S. and in particular in the EU. And if there is one thing we absolutely do not need at the moment, it’s More Bad News ™.

    So, please, no. Just no. Don’t collapse, there is a good boy… :-/

    A.

  4. Anonymous

    …so if Russia & Switzerland follow Iceland down the slippery (icy?) road of making promises they can't keep to save financial institutions which can't do anything but fail…where does it lead?

    (aside: Why did the Irish get a free pass on this one? Their guarantee was ludicrous compared to their GDP. Maybe they win because they did it first & collected a windfall of fearful deposits…?)

    I guess that means the US will have the last currency standing due to the fact that the world thinks of USD/Treasuries as the ultimate safe haven?

    Does anyone else get the sense that we are just at that point in the movie where everything seems relatively safe after the big crash/fall/bang, but then they cut to a closeup of cracks forming in the foundation?

    IM

  8. doc holiday

    I thought I'd look for Globex also, and all I could find was this 25 year old punk @ Renaissance capital:

    Maxim Raskosnov joined Renaissance Capital in August 2007. He is currently a Vice-President of Credit team at Fixed Income Research, where his primary coverage sectors include Russian and Ukrainian financial institutions and CIS utilities.
    http://research.rencap.com/eng/whoarewe.asp?rid=0&cid=0&authorID=93#info

    Please to look at this baby faced analyst, he is still in diapers and it looks like he has a Playstation in his left hand — but I could be wrong?

  11. Anonymous

    And now the prophecy of the eskimo woman will come true and Russia will become communist again.

    Haha!

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