Business lending to Banks ?

Euro banks now borrowing from businesses instead of lending to them

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Kenneth Schortgen Jr

, Finance Examiner

January 9, 2012 - Like this? Subscribe to get instant updates.

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In what can only be described as Bizzaro world, or some form of alternate reality, an unusual trend is now taking place in the Euro Zone where banks are actually borrowing money from businesses to stay solvent, instead of the banks lending to businesses for the same purpose.  In a report from January 9th, a source within the European banking industry specified that American and European companies were actually lending cash to European banks to allow them to remain solvent, and acquire capital funding.

Blue-chip names like Johnson & Johnson (JNJ.N), Pfizer (PFE.N) and Peugeot (PEUP.PA) are among firms bailing out Europe's ailing banks in a reversal of the established roles of clients and lenders.

One source with knowledge of the so-called repo deals or short-term secured lending, said the two U.S. pharmaceutical groups and French carmaker were the latest to sign up for them.

As a result a group of well-known, cash-rich companies with solid cash flows has stepped in the repo market, which provides a form of lending so far almost exclusively in use between banks, and between banks and central banks.

One market participant said in one key area of lending companies now accounted for 25 percent of these deals. - Reuters