Emerging Markets

Bank panic about to grip Europe: Kyle Bass

Hedge fund manager expects run on financial institutions in Spain, Greece and Italy; Latvia was coming attractions

Kyle Bass, the Dallas-based hedge fund manager who said in 2009 that governments would default within three years, said Greek, Portuguese and Spanish depositors will withdraw money from banks in the coming months.

“Just as Latvians ran to the ATMs this weekend, so will depositors all over peripheral Europe in the months ahead,” Bass, who runs Hayman Capital Management LP, said in an investor letter. “Deposits are now declining at an accelerated pace. What’s surprising is that it hasn’t happened much sooner.”

In Greece, business and household bank deposits have slumped 26 percent in the past two years to 176 billion euros ($229 billion), and fell in October by the most since the nation joined the euro, according to the Bank of Greece. There were 2.24 trillion euros of overnight deposits with euro-region financial institutions at the end of September, down from 2.26 trillion in July, according to data compiled by Bloomberg.

Latvians pulled about $54 million from local Swedbank AB automatic teller machines on Dec. 11 and 12 on speculation customers wouldn’t be able to access their funds. “The rumors were knowingly distributed with the goal of destabilizing the situation in Latvia,” Prime Minister Valdis Dombrovskis said, according to the Leta newswire. Clients withdrew about 1.5 percent of total deposits on Dec. 12, the Swedish bank said in an e-mailed statement.

A Dec. 9 European Union summit was the 15th in 23 months as leaders attempt to contain a surge in bond yields that threatens the survival of the common currency.

S&P placed the ratings of 15 euro nations on review for possible downgrade on Dec. 5, including the region’s six AAA rated countries. Moody’s said Dec. 12 it will review the ratings of all EU countries in the first quarter of 2012 because the summit didn’t produce “decisive policy measures.”

“As European leaders press forward with failed attempt after failed attempt to suppress borrowing costs, control spending, reduce deficits and prop up what the markets have already told us is a broken monetary system, the data tells us that the citizens of the most troubled and profligate nations are losing confidence in the euro dream,” Bass, whose firm oversees about $948 million, said in the letter, a copy of which was obtained by Bloomberg.

He said trust and confidence in the region’s economy has been lost and reiterated that sovereign defaults are “imminent.”

Bass declined to comment beyond the letter, published yesterday, when contacted by Bloomberg News today.
–Bloomberg News–