ECB Allots €529.5 Billion in Long-Term Refinancing Operation

Genau, mit dem 2. LTRO braucht die EZB nun keine Staatsanleihen mehr kaufen. Weil das tun die Banken nun wieder mit dem billigen Geld. Staat es Unternehmen zu leihen, werden Bankbilanzen auffrisiert und Staatsanleihen gekauft. Damit durckt die EZB „doch kein frisches Geld“, oder??? Die Risken für die Eigentümer der EZB (also indirekt Sie und ich als Staatsbürger) steigen ins unermessliche. Man vergesse nicht: in den letzten zwei Monaten hat die EZB mehr als eine Billion Euro frisches, gutes Geld in Umlauf gebracht. Ob das genau ihren Statuten entspricht??? Laut Draghi ist der Sozialstaat sowieso am Ende! (hfk) 

Date: 29-02-2012

Source: The Wall Street Journal

The European Central Bank said it dished out €529.5 billion ($712.8 billion) in cheap, three-year loans to 800 lenders, the central bank’s latest effort to arrest a financial crisis now entering its third year. 

Wednesday’s loans come on top of the €489 billion of similar loans that the ECB dispensed to more than 500 banks in late December. The ECB’s goal with the two batches of loans is both to avoid an escalating crisis as banks struggle to pay off maturing debts, and also to mitigate a sharp pullback in bank lending to customers across ailing European economies. 

The €529 billion take-up of this week’s loans was roughly consistent with what bankers, investors and analysts had expected. Surveys by multiple investment banks this week found that investors expected banks to borrow more than €500 billion, although some analysts said they anticipated a smaller amount.

The ECB doesn’t disclose the identities of the banks that borrowed, hoping to avoid any stigma being attached to the program. Dozens of European banks, including virtually the entire Italian and Spanish sectors, have disclosed that they borrowed in December, with many having said they expect to do so again this week.

Intesa Sanpaolo SpA, Italy’s second-largest bank, borrowed €24 billion from the ECB’s three-year lending program this week and intends to use a chunk of the money to buy Italian government bonds, according to the chairman of the bank’s management board.

The new funds, which come with a 1% interest rate, will be used in part „for a profitable trading strategy regarding Italian government bonds,“ Chairman Andrea Beltratti said in an interview. He said the bank would mainly purchase Italian government bonds with maturities of three years or less, so that they match with the three-year duration of the ECB loans.

The actual amount of new liquidity sloshing around the banking system as a result of the loans is less than immediately meets the eye.

That’s because roughly €150 billion of short- and medium-term ECB loans that were coming due this week, so the net new amount of liquidity is actually about €379 billion.

The ECB’s Long-Term Refinancing Operation, or LTRO, has emerged as one of the most potent weapons in the ECB’s crisis-fighting arsenal. Before the three-year loans were unveiled late last year, ECB loans generally had to be repaid within about a year.

By providing banks with virtually unlimited funds for three years at a 1% interest rate, well below what banks would have to pay to borrow from scarce market sources, the first dose of ECB liquidity virtually eliminated the risk that a bank would suddenly keel over because it ran out of money.

December’s cash infusion also raised hopes that banks were using the borrowings to buy government debt in southern European countries, providing a much-needed boost to demand during a period when many investors were skittish about buying their bonds. Indeed, yields on Spanish and Italian bonds, especially those that mature in less than five years, have declined precipitously since the ECB doled out the first batch of loans.

But senior executives at many European banks say they didn’t reinvest the loans in government bonds or, for that matter, any other assets.

Instead, they used the funds to pay down their maturing debts or simply deposited the money at other banks or at the ECB itself. And some experts worry about banks growing addicted to the inexpensive long-term funding.

The amount of loans the ECB will dole out this week has emerged as a closely watched proxy for the health and financial prospects of the banking sector. The guessing game has not only infected dozens of investment banks and research shops, which have published forecasts and client surveys of the expected usage, but also social networks like Twitter, where users posted their bets of how much banks would borrow under the subject „#LTROguess.“

Analysts and investors have been sharply divided over how to interpret various levels of participation in the program.

Some argue that larger, widespread borrowings are a hopeful sign. The money comes with no strings attached, so banks can invest or lend it as they please. As a result, many analysts say higher borrowing will translate into fatter profits for banks, helping them fortify their balance sheets.

Plus, some European government officials and central bankers believe the extra funds will spur banks to lend more or to buy more government bonds, which could provide a boost to European bond markets and economies.

A large take-up, above €600 billion, „would be seen as a sign that banks are well funded and more likely to hold sovereign bonds,“ wrote Vincent Chaigneau, an analyst in Société Générale in London. If less than €400 billion is borrowed, that would be „a signal that banks have little appetite for the sovereign carry trade and [are] still keen to deleverage: bad for risk.“

On the other hand, heavy participation in the LTRO could also serve as a reminder of the severe problems facing the European banking industry. It also could foster fears about how lenders will regain their ability to finance themselves independently without relying on central banks.

For some smaller banks, reliance on the ECB loans „is merely stalling recognition of fundamental weaknesses,“ said Bridget Gandy, co-head of European financial institutions at Fitch Ratings.

Central bankers and regulators have been trying to encourage banks to borrow heavily from the program. ECB President Mario Draghi has repeatedly asserted that there should be no stigma associated with tapping the funds.

And central banks in seven euro-zone countries this month said they would start allowing banks to post a wider array of assets—such as residential mortgages and loans denominated in foreign currencies—as collateral in order to get the loans. Mr. Draghi said the looser collateral rules would enable banks to draw an additional €200 billion in loans.

Despite the looser rules, banks have been devising increasingly creative ways to come up with new collateral. The parent company of struggling Spanish lender Bankia SA, for example, recently issued €15 billion of bonds that, because they’re guaranteed by the Spanish government, are eligible to serve as collateral for ECB loans. The buyer of the bonds was the bank itself. Bankia says the move gives them the option of tapping the ECB for more loans.