Could America look like this in 2013

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.

Some Europeans move funds out.

While European leaders had hoped that the Dec. 9th  agreement on a stronger euro-zone fiscal pact would calm such jitters but instead tensions high, also 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.

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 while others are buying gold; Ticino gold retailer Pro Aurum has seen a surge in sales of gold bars over the past six months.

Some are considering more radical options. Paolo Gaeta, a Naples-based lawyer specializing in trusts, has been busy helping clients deposit their wealth in new trusts established in Singapore, the Bahamas and the island of Jersey in the English Channel. "We are being bombarded by clients," he says.

Andrea Caraceni, head of CFO Family Office, a Milan-based wealth manager with €800 million under management, is counseling clients to move money outside Europe altogether, including jurisdictions such as the U.S., Australia or Canada. And Roberto Lenzi, a Milan based lawyer specializing in wealth planning for investors with at least €5 million in assets has had requests in recent months from clients looking for help in moving their residences as well as their assets abroad.

Elsewhere, capital flight from Greece is intensifying. Since the start of Greece's debt crisis in late 2009, Greeks have pulled more than €60 billion of cash, about a quarter of total deposits from their banks. Between September and early November, those outflows totaled nearly €14 billion representing two of the worst months for deposit outflows since the start of the crisis.

According to the Bank of Greece about a fifth of deposits withdrawn in the first nine months of this year went abroad. One senior executive at a Greek bank said his group has seen a pick-up in transfers of money abroad over the past six weeks.

London real estate also is luring spooked euro-zone investors. Purchases of central London residential homes by Greek nationals have tripled in the last year at leading agent Knight Frank, according to Liam Bailey the firm's head of residential research, while Spaniards' acquisitions have doubled.

Since the start of Greece's debt crisis in late 2009 Greeks have pulled more than €60 billion of cash which is about a quarter of total deposits from their banks.

Southern European investors are also seeking investment products that minimize their euro-zone risk, but without sending money abroad. Demand for safe deposit boxes is up this year in Portugal, bankers say, as depositors seek alternatives to accounts, which can be frozen in case the country goes bankrupt or exits the euro.

Banks already fearful of a drain on deposits are obliging in other ways. Banks in Portugal, including Deutsche Bank AG's local offices there are offering clients equity funds registered in Luxembourg or depository accounts in currencies such as the Swiss franc, U.S. dollar or Japanese yen.

So wishing you the best in safety,

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