Southern European investors, fearful of the health of their banks and the future of the euro, are increasingly stashing their wealth in currencies, real estate and investment products outside the euro zone, say bankers and government officials.
In a troubling sign for European banks, investors in Greece, Portugal and Italy are asking bankers and lawyers for ways to protect their money in the case of a failure of euro-zone banks or a breakup of the euro itself. Some are converting deposits into currencies such as the Swiss franc. Others are buying real estate outside the monetary union, such as in London, or setting up trusts to hold their wealth in jurisdictions as distant as Singapore or the Bahamas, say bankers and lawyers.
While European leaders had hoped that the Dec. 9 agreement on a stronger euro-zone fiscal pact would calm such jitters, tensions instead remained high last week, when the euro hit its lowest level against the dollar since January. Moreover, in Italy’s first auction since the pact, the government had to pay a euro-era record yield of 6.47% to sell five-year paper, up from 6.29% a month ago.
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As a result, the capital flight is likely to continue and could intensify, say experts. “Clients such as white-collar professionals and business owners see a risk in the Italian banking system,” says Andrea Cingoli, chief executive of Banca Esperia, a Milan private bank with €13.5 billion ($17.6 billion) under management. “As a result, they are looking at their options overseas.”
With the exception of Greece, the amounts still are relatively small, but the risk of a bigger exodus remains high. “Are we going to see significant outflows of money from these countries? Not yet,” says Marcello Zanardo, a London-based analyst with Sanford Bernstein. “But the line is very thin and the atmosphere is tense.”
In Italy, the sharp escalation of fears over the country’s fiscal woes and jitters over the liquidity crunch facing Italian banks have driven investors in recent weeks to Switzerland, whose franc has soared this year as investors seek a refuge from the euro-zone crisis. In response, bankers in Switzerland’s Italian-speaking region of Ticino report a small but steady inflow of Italian money over the past month, along with a sharp surge in inquiries from Italians fearful of a collapse of their banks or the common currency itself.
“We have seen a steady increase in the flow of money here by Italians looking for a stable political and financial environment like Switzerland, where the banks are moving away from the old bank secrecy model,” says Christian De Prati, former CEO of Merrill Switzerland and currently an independent wealth manager.
Bankers say Italians are converting their euros into Swiss francs and depositing them in Switzerland for safekeeping. Safe-deposit boxes are virtually sold out. Others are buying gold; Ticino gold retailer Pro Aurum has seen a surge in sales of gold bars over the past six months.
Full article here-WSJ