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
That’s €530bn with 800 bidders — 277 more than participated last time, when the uptake was €489bn.
The below is from the FT’s Money Supply blog that covers all things central banky.
The ECB’s exposure to peripheral sovereign debt and a host of other assets of dubious quality has sparked concerns about the central bank’s solvency. Read more
That wasn’t quite our last pre-LTRO/Ltro/L-Troh post.
On Tuesday Marc Chandler, global head of currency strategy at Brown Brothers Harriman, ventured an interesting hypothesis on what the market’s response might be to the LTRO-II take-up, in relation to the consensus expectations of roughly €500bn. Read more
A nice visualisation from Fitch of which countries’ banks accounted for most net new liquidity provided by December’s first three-year LTRO, ahead of the second liquidity op this week:
Or, the Goldilocks Ltro — euro bears edition.
Too much liquidity, the euro jumps — but then falls. Too little, it just falls. Anyway, that’s the interesting view from the friendly bears over at Morgan Stanley. Read more
Yes, “L-troh”. So ubiquitous is the ECB’s three-year liquidity op getting that we’re turning the acronym into a word. Like Nato or Isda. So sue us!
With the second three-year Ltro on Wednesday, the release from the burden of the acronym has come just in time for another bout of guesswork on how ‘big’ it will be, and just what the ECB’s funding will be used for. Read more
The covered bond LTRO carry trade. Pretty attractive in December. Not so much now.
That at least, is the view of Leef Dierks at Morgan Stanley on Friday. Read more
Exhibit one, the Greek default.
The European Central Bank will not take losses on Greece. It will not even have to do anything tricky with ‘purchase prices’ etc under the latest bailout deal. The ECB simply hands over profits on the bonds that it makes over time (accrued coupons, “pull to par”, so on) to eurozone governments – a perfectly normal operation – who can then commit the (pretty meagre) proceeds to Greece. Read more
It’s understandable why the introduction of a two-year collateralised credit facility as well as the expansion of the range of eligible collateral accepted by Hungary’s central bank, the Magyar Nemzeti Bank (MNB), might have been confused for the Hungarian version of the ECB’s LTRO.
But, says Nomura’s Peter Attard Montalto, this would be a misnomer. Read more
Courtesy of the European economics team at UBS…
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
The point has been made before that rising deposits at the ECB do not, (repeat, not) indicate that banks are “hoarding liquidity”.
Here’s Guy Debelle, assistant governor at the Reserve Bank of Australia, on the subject, in a speech made earlier on Tuesday: Read more
Leading hedge funds have profited heavily from a rally in European banking stocks in recent weeks and are wagering that their gains will continue amid fresh measures to inject liquidity into the financial system from central banks, says the FT. This year has seen some of the strongest performance numbers from equity-focused hedge fund managers since 2009. The average equity long/short hedge fund returned 3.8 per cent in January and is provisionally up 1.6 per cent for February, according to Hedge Fund Research. Bets in banks such as Italy’s UniCredit, Spain’s Santander and the UK’s Barclays have made some hedge funds millions. Among big hedge fund gainers in the past six weeks have been Toscafund, run by the former Tiger Management star trader Martin Hughes, which has seen its flagship fund gain 7 per cent. A more specialist fund run by Mr Hughes himself is up more than 18 per cent. Crispin Odey’s flagship European hedge fund rose 14.7 per cent in January alone while Lansdowne Partners saw its flagship UK fund rise 5.7 per cent. Fund managers are unequivocal that it has been the European Central Bank’s Long Term Refinancing Operations lie behind their gains. 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
Mario Draghi has run into Bundesbank resistance over easing access to ECB offers of three-year liquidity for eurozone banks, reports the FT, highlighting German unease over the measures the ECB president has taken to turn the region’s fortunes. The ECB’s 23-strong governing council gave the go-ahead on Thursday for seven national central banks to expand the assets that can be used as collateral when obtaining liquidity. The rule changes would temporarily allow the broader use of bank loans, boosting by about €600bn the pool of assets that can be used as collateral in ECB operations, before haircuts were applied. However, Jens Weidmann, Bundesbank president, voiced concern about a lowering of credit standards and Mr Draghi admitted the council decision had not been unanimous. The Bundesbank’s concern is significant because Mr Draghi has tried to repair the damage created by conflicts with sceptical German policymakers over eurozone crisis measures under Jean-Claude Trichet, his predecessor. 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
From Icap’s latest repo weekly report:
Intesa Sanpaolo’s chief executive says he’ll use ECB funds to buy Italian bonds…
BBVA sells the first senior unsecured bond to be issued by a Spanish bank since October… (like Intesa a few weeks ago. Both with unusually short – 18-month – maturities, however) 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
Deutsche Bank has risked a clash with the European Central Bank by indicating it sees a stigma attached to the long-term help offered to banks to try to ease the eurozone’s funding crisis reports the FT. Josef Ackermann, chief executive, made clear that Deutsche might not take up the ECB’s next offer of unlimited three-year loans because it might be seen as tantamount to government aid that could damage the bank’s reputation. Mr Ackermann said Deutsche had not taken part in December and was reluctant to be seen as needing help. “The fact that we have never taken any money from the government has made us, from a reputational point of view, so attractive to so many clients in the world that we would be very reluctant to give that up,” Mr Ackermann told analysts on Thursday. Mr Ackermann also said: “I’m normally not a friend of carry trades and I don’t think we would borrow money to buy sovereign risks even if there is an attractive spread.” 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
European banks are preparing to tap the European Central Bank’s emergency funding scheme for up to twice as much as the ECB supplied in its debut €489bn auction last month, providing further evidence of the sector’s liquidity squeeze, the FT reports. Several of the eurozone’s biggest banks have told the Financial Times that they could well double or triple their request for funds in the ECB’s three-year money auction on February 29. “Banks are not going to be as shy second time round,” said the head of one eurozone bank at last week’s World Economic Forum in Davos. “We should have done more first time.” Three bank chief executives, all of whom asked to remain anonymous, said they were planning to increase their participation twofold or threefold. Three bank chief executives, all of whom asked to remain anonymous, said they were planning to increase their participation twofold or threefold. Read more
European banks are preparing to tap the ECB’s emergency funding scheme for up to twice as much as the ECB supplied in its debut €489bn auction last month, the FT says, citing three chief executives of unidentified eurozone banks who said they would increase their participation two- or threefold in the auction on February 29. “Banks are not going to be as shy second time round,” said the head of one eurozone bank at last week’s World Economic Forum in Davos. “We should have done more first time.” Goldman Sachs has told clients that banks could ask for twice as much in the February auction as in December when more than 500 lenders raised €489bn. “They could do another €1tn easily in February,” said one senior banker. “It could be way more than that if things get worse in the markets.” Read more
More ECB LTRO stuff, this time from Credit Suisse’s European banks team:
Global bank bonds are enjoying their strongest monthly rally in nearly three years after the European Central Bank injected €489bn into the eurozone’s banking system, averting a liquidity crunch that could have undermined efforts to boost economic growth, the FT reports. The total return for the bonds of European financial companies is 3.5 per cent so far in January and it is about 3 per cent for US financial debt, both on track for the biggest monthly return since July 2009, according to indices from Barclays Capital. The bank bond rally highlights how the LTRO has helped lift investor sentiment in Europe and beyond after a difficult second half to 2011, when European banks struggled to raise funds in the wholesale market. More than 500 banks across Europe bid for €489bn in three-year loans from the ECB in December. A second tranche of the LTRO is due in February. The recovery in the bank bond market has been mirrored in the equity market, with European and US banks bouncing off their start-of-the-year levels. Read more
Another reason why we don’t like the meme of viewing the ECB’s three-year liquidity as (or in any way analogous to) “quantitative easing” for sovereigns:
Mark-to-market risks remain key Read more
Or, what kind of risk the ECB’s three-year LTROs are putting on.
Two charts — click to enlarge: Read more
Or, taking the “three-year LTRO = QE” meme and running with it. Two charts via Societe Generale’s cross asset team on Monday: