This is one way to respond to the mess Euroland is in over who should make the calls for recapitalising banks…
The European Banking Authority is delaying its next banking stress test to 2014, to wait for both new asset-quality reviews and the ECB’s Single Supervisory Mechanism (so is it to wait for Wolfgang Schaeuble?): Read more
There’s been some thought-provoking revisionism floating around about Cyprus lately.
The gist seems to be this: Why not push bank bail-in policy in the eurozone much harder, right into uninsured depositors if need be, if Cyprus has not (yet?) budged most gauges of bank funding from their current calm. And more importantly, when there is a vicious circle to resolve. Read more
That’s a very small €3.7bn take up by banks participating in the European Central Bank’s three-month Long Term Refinancing Operation on Wednesday. We’d expected more. Read more
LTRO repayment chat is speeding up the closer we get to the fateful day at the end of January when Euro-banks might actually start sending back once cheap cash to the central bank. How much will be repaid, by whom and when are the questions that need to be answered.
Thing is, it seems that by at least one measure, the market is mispricing the amount of cash that’ll flow back to the European Central Bank. And maybe ignoring the ECB’s motives in this whole debate. Read more
Things have gotten so good recently for European banks that the idea of them repaying their LTRO cash early is getting more attention as the first date at which they can do so — January 2013 — creeps up. And there’s certainly more bank debt being issued, even by the peripherals:
Nothing like systemic risk to bring the banks together. The crisis at times left little between them. Eventually though, the market will start to differentiate more. As Huw van Steenis and his colleagues at Morgan Stanley put it in a recent note Read more
What happened with all that European bank deleveraging?
Some of it is over with, says Barclays — leaving, by our estimates of their estimates, about €650bn* of deleveraging yet to be carried out among the major European banks they cover**. Quite big, but much less than the €1.5tn – €2.5tn being discussed late last year. Read more
Basel catches European bank capital legislation letting big cross-border lenders play a bit too fast and loose with zero risk-weighting of government bonds for its taste, the FT says.
Well, here’s the key para… Read more
It relates to government-guaranteed bank bonds. In plain English — this appears to be tightening banks’ future use of them as collateral but with exceptions for some banks.
From Tuesday’s decision: Read more
Portrait of a bank capital-counting model in trouble – charts via Barclays Capital:
Many banks in the eurozone have a significant international presence. The diversification is a positive if the home market is suffering disproportionately. That being the case, perhaps one could expect further investment in less sickly markets abroad?
Maybe. Read more
Charts via Nomura’s European bank analyst, Jon Peace:
Fund managers have been shunning European bank and retail stocks for quite some time now, but there are signs that things are beginning to change. At least that’s what the global equity strategy team at HSBC found when they looked at the latest (March 2012) data on international fund holdings. Three European trends stood out.
Amazingly, European banks are coming back into favour. Well… more like slightly less out of favour (emphasis ours): Read more
In the recent years, the financial crisis has led to a marked deterioration in European financial integration…
You might say that’s a statement of the obvious from the ECB’s latest report on financial integration in the eurozone. Read more
The ECB has some room to further lower the policy rate, given that inflation is projected to fall appreciably below the ECB’s “close to but below” 2 percent inflation target over the medium term and that risks of second-round effects from high oil prices or tax and administrative price hikes appear small––WEO projections see headline consumer price index inflation falling to about 1½ percent by 2013, below the ECB’s target. Low levels of domestic inflation can hinder much-needed improvement in debtors’ balance sheets and stand in the way of much-needed adjustments in competitiveness. The ECB’s unconventional policies need to continue to ensure orderly conditions in funding markets and thereby facilitate the pass-through of monetary policy to the real economy.
Plus: “The Bank of England can further ease its monetary policy stance,” according to the Fund. Read more
The average maturity of a euro of liquidity provided by the ECB on December 1 was 46 days. Today [March 5] it is 942 days, an increase of 20 times
– Lorcan Roche Kelly of TrendMacro, on the ‘time quality’ of €1.1tn LTRO funding Read more
Banks including Barclays, Lloyds and Credit Agricole will use funds they borrowed from the ECB’s three-year liquidity operation to prop up subsidiaries in the economies of the eurozone periphery, the WSJ reports. Barclays’ Spanish and Portuguese units tapped funding in the February LTRO, while Credit Agricole partly borrowed through its Greek offshoot. In getting subsidiaries to fund from the ECB in this way, parent banks will be able to limit exposure to the units if the local economies falter, or even leave the euro altogether. Meanwhile, there are fears that banks will use LTRO cash to redeem so much bank debt in the next year that corporate debt markets could sharply contract, says the FT. Read more
Yeah, we knew the LTRO-inspired rally would make it easier for European banks to start closing the gap between their capital ratios and those required by the EBA – or at the very least, as in the case of Commerzbank, embolden them to announce big plans for doing so.
The EBA — remember all that tough talk last October about monitoring banks closely to make sure the recap was asset sales-light and capital raise-heavy? — is amusingly eager to disavow credit for any recent improvements. Just banks doing their thing, especially if by “their thing” one means “breathing easier now that they’re allowed to pledge dirty skivvies to fund themselves, and shareholders are off their backs for the moment”. Whatevs. Read more
Eight hundred European banks borrowed €529.5bn in three-year liquidity from the European Central Bank in the last LTRO, the FT reports. More than half of the banks tapping funds came from Germany, according to people familiar with the auction. But Italian lenders also took down €130bn of funds in return for collateral, with Spanish borrowing also likely to be heavy, Reuters says. FT Alphaville has a list of individual lenders who revealed their involvement, and the amount borrowed. The ECB is apt to watch for whether the funds are used to lend to the real economy or to refinance bank debts. Read more
Not all 800 banks who tapped the ECB’s second three-year liquidity op — obvs. But…
[DJ] Intesa Sanpaolo Took Up EUR24B Of ECB’s LTRO – CEO Read more
We’re shocked (shocked!) that Commerzbank has rolled out a €1bn capital increase now that European bank equity isn’t a total disaster area. Having not done it when it was.
By executing this transaction Commerzbank intends to take advantage of a favourable market opportunity to further improve its capital structure… Read more
We missed Willem Buiter’s comments on “additional credit claim” ECB collateral when they were published on Monday. But since it’s pretty strong stuff from the Citigroup economist…
(Might need a key. ELA = emergency liquidity assistance. GC = General Council. Rouble zone = background here; byword for monetary disintegration, basically.) Read more
Just as “free lunch” appears in a Bloomberg headline on the ECB’s three-year liquidity…
Here’s a pair of interesting analyst reactions to Friday’s details on eurozone central banks’ rules for accepting additional credit claims. It’s an expansion of eligible ECB collateral. But neither a free lunch – nor a source of easy carry – given the haircuts these assets (bank loans, from French real estate to Spanish public sector to Italian lease finance to Austrian SME, etc) will bear, it seems. Read more
No deleveraging because of our recapitalisation exercise, really — or if there is, you’ll hardly notice it. So says the European Banking Authority in a Thursday night release:
(Warning: pie charts follow) Read more
Some interesting points about the ECB’s expansion of the collateral it will accept for funding at February’s three-year LTRO, plus a bit on its Greek bonds, from ECB President Mario Draghi at pixel time…
(“New collateral” = credit claims, or bank loans, which national eurozone central banks will accept, and bear risk on, under the revised rules. Draghi said that the ECB would publish further rules at 1500 GMT. We’ll post when we get them. Update -- see below!) Read more
Seems kinda churlish to throw this out amidst the biggest bank bond rally since 2009. But…
We believe investors should assume a low (possibly 0%) recovery rate on most senior unsecured bank bonds Read more
Just one name today, but hopefully it rams home why banks are using the ECB’s three-year liquidity. From BBVA’s latest results:
Making use of the new lending facility provided by the European Central Bank (ECB), BBVA took up €11,000m at the extraordinary 36-month auction on December 21. This figure is equivalent to the sum of its wholesale debt redemptions for 2012. It means that the Group has “liquidity coverage” and demonstrates its prudence in liquidity risk management in line with the profile of maturities in upcoming years. However, it does not imply that the Group will not issue debt in 2012 if conditions improve. Read more