Wolf
Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
Smart
Russians are voting with their bank accounts, dumping rubles, and
buying dollars and euros. Total demand rose to $14.9 billion in
March, 1.5 times larger than in February. The highest since January
2009 during the chaos of the financial crisis. “Amid the continued
weakening of the ruble against major world currencies and the
uncertainty of expecting further declines, the aggregate demand for
foreign currency has increased dramatically,” is how the Central
Bank explained the phenomenon in a statement, asReuters reported.
And they yanked a record $6.9 billion, roughly half in euros and half
in dollars, out of their banks.
That
mini-run on Russian banks continues even as Russian state-TV is
already discussing the carving up of the “Ukrainian pie”
(screenshot by
Shaun Walker, Moscow correspondent of the Guardian). A couple of
weeks ago, the IMF had sounded the alarm, estimating that $100
billion in foreign exchange might flee Russia in 2014. Capital flight
is not a new phenomenon in Russia as the debacle of the Cypriot banks
has shown. These cesspools of corruption took down much of the
Russian “black money” with them.
Russian banks are now getting desperate to
procure these foreign currencies, and one place where they can go to
pick up euros is Germany. That’s what VTB Bank did, a subsidiary of
VTB Group, one of Russia’s largest financial institutions with
operations around the world, majority-owned, as so many outfits, by
the Russian state. A couple of weeks ago, Standard and Poor’s
lowered VTB to BBB-, one notch above junk, with negative outlook. So
not exactly a paragon of financial stability.
Turns
out, in early May VTB made a big splash in Germany, offering
phenomenal interest rates of up to 2.5% for 5-year CDs to German
savers if they open an internet account [screenshot]. Phenomenal only
in these crazy times of interest rate repression where frantic German
savers, driven to near insanity by the low rates all around, think
it’s a good deal to lend money to a near-junk rated bank at 2.5%
for five years – a rate that topped the list of internet rankings.
Why the aggressive rate move? To bring some
relief to the tortured savers? Nope. The bank has an explanation:
“VTB
Bank Direct celebrates its birthday,” wrote the Frankfurt branch on
its homepage, as the Spiegel reported
at the time, though any reference to the birthday ruse has since been
purged from the website. May marks the third anniversary that VTB has
been plying the German internet banking market. So the article
wondered, “Is the money of German savers flowing to Moscow?”
A
toppling foreign bank coming after the euros that Germans have
squirrelled away is not a new strategy. Iceland’s Kaupthing Bank
made such a foray in March 2008, under its internet banking brand
Kaupthing Edge, desperate as it was, just as other investors were
bailing out. It collapsed
a few months later after
it had fleeced 30,800 German depositors of €308 million.
So
now VTB is trying its luck. But the sums are much higher. The
Frankfurt branch is organized under the Austrian subsidiary VTB
Austria. In 2012, it already had about €2.5 billion in deposits
from German savers. The amounts for 2013 are not yet available as the
bank was still trying to straighten out its books, or something, the
bank told the Spiegel.
The reasons might be benign – though “might
be” is not a good term when it comes to banking. Since it started
operating in Germany three years ago, the first major wave of CDs is
maturing, and the bank might want to replace the old money with new
money, or hang on to the old money. Sort of as the bank claimed, a
birthday celebration.
But that seems unlikely. VTB is heavily
invested in Ukraine which, in addition to all its other problems, is
sinking deeper into an economic fiasco. So VTB is contemplating
massive losses. Then there’s the escalating sanction spiral. It’s
causing a lot of gray hairs among VTB’s international and Russian
customers, and they’re trying to pull their euros and dollars out –
something the Central Bank has now confirmed. VTB needs to replace
this money with new money that has to stick it out. Hence CDs.
The
bank, when the Spiegel inquired,
denied this, of course. It claimed that the deposits of the German
savers would not head east, but that the “overwhelming majority”
– without specifying what that was – would fund its Western
European loan portfolio.
The
Kremlin and the Central Bank felt forced to announce that they would
support the state-owned banks, which might give German savers the
illusion of security. VTB Austria is already under special
observation by Austrian bank regulators, the Spiegel has
“heard”; under EU rules, in the worst case scenario, which isn’t
that unlikely anymore, it would be the Austrian government that would
have to deal with the red-hot tempers of stiffed German depositors.
They’d done what the ECB had wanted them to
do: go out to the thin end of that risk limb and chase yield and
ignore the dangers. This is what allowed Spain and Italy to borrow
money at record low yields, and it’s what allows a teetering
Russian bank to fill the holes left behind by its wise customers in
Russia with still dirt-cheap euros from Germany.
Putin
is a master at this game. Even as the sanction spiral is supposed to
strangle his ambitions for the Ukraine, he set up a photo op of
incomparable ingenuity. And his confidant, former Chancellor of
Germany Gerhard Schröder and some other ranking German politicians
stepped into it with gusto. Read….. Putin
Parties With German Ex-Chancellor, Sanctions Be Damned
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