ECB LTRO 2: €529.5 Billion As 800 Banks Ask For A Handout
The results for the second European 3 year discount window operation, pardon LTRO are in, and the winner is...
- ECB ALLOTS EU 529.5BLN IN 1,092 DAY REFINANCING TENDER
- ECB SAYS 800 BANKS ASKED FOR THREE-YEAR LOANS
Since the expected range was €200 billion - €1 trillion, and just above the median €500 billion, this is clearly within expectations, however notably less than what the Goldman investor survey expected at €680 billion. What is certainly scary is that the number of banks demanding a hand out was a whopping 800, well above the 523 from the first LTRO: clearly many banks are capital deprived.
Next the focus will be on how to spin this data as favorably as possible since both a lower and higher than expected number have been prerinsed favorably. And now, the easing focus shifts from Europe which has accepted about as much worthless collateral as it possibly can realistically, to the US, and Bernanke's testimony later today. Unless the Chairman somehow convinces the market that the easing theme will continue, the market, long rising on a wave of global central bank liquidity, will be in for a rude awakening.
Kneejerk market reaction is clearly to fade the news.
additional details below...
http://ftalphaville.ft.com/blog/2012/02/29/903441/ltro-2-e530bn/
additional details below...
http://ftalphaville.ft.com/blog/2012/02/29/903441/ltro-2-e530bn/
LTRO.2 €530bn [updated]
That’s €530bn with 800 bidders — 277 more than participated last time, when the uptake was €489bn.
For reference, here’s the first Ltro:
As a reminder, December’s sum was ‘only’ €193bn of new liquidity.
We’ll update with analyst reaction as it comes in. But at pixel time market reaction was nonexistent.
Update 10:40am London time
Reaction from NewEdge on the size of the Ltro and how much net liquidity it has provided:
The ECB second 3y LTRO has been successful, with another EUR 529.5bn bid vs a median estimate for EUR 470bn. At a first glance, it looks like today’s LTRO refi auction injected another EUR 250-300bn cash in the system (if we look at the the reinvestment flows at the previous “shorter” Refi auctions in the past few weeks).
Concerning whether going to the ECB for three year loans is a good or bad thing:
A high number of banks bid at today’s auction (800), a sign that the “stigma” associated with the auction has somehow dissipated. Opportunity Carry trades and the relaxation of the collateral criteria have certainly be key factors supporting the auction today. Further tightening in EMU periphery spreads can be expected now.
That said, they don’t think the market reaction will be as pronounced as it was with the first Ltro.
Update 10:59 London time
Different estimate for the net liquidity add from IFR’s Divyang Shah:
Taking into account funds rolled from shorter dated operations the net liquidity add is some 444.5bn. This is at the higher end of market expectations and should have a positive impact on risk assets especially when compared to the 193.4bn net liquidity add that was seen from December’s LTRO1.
Such are the perils of quick reactions. We’ll be keeping an eye out for further analysis.
and ZH comes in at 311 billion euros for net liquidity
Submitted by Tyler Durden on 02/29/2012 08:22 -0500
and ZH comes in at 311 billion euros for net liquidity
LTRO 2 Bring Down: €529.5 Billion Gross, €311 Billion Net; Discount Window Stigma Resurfacing
Just like the first time around, the net gain from the LTRO when taking into account rolling off instruments, will be lower than the Gross amount. How much? According to Soc Gen, the final number by which the ECB's deposit account will increase will be about €210 billion less than the overhead number. From Soc Gen's Lauren Rosborough: "The LTRO outcome: €529.53bio was allocated to 800 institutions (compared with €489.19bio allocated to 523 institutions in Dec). The net increase, according to our economists, is €311bio (adjusted for yesterday’s MRO reduction, 3m LTRO allotment this morning, and the roll-off of the 3m and 6m LTROs tomorrow). The allocation was above our and at the upper end of the market range of expectations. After a brief and limited positive risk move (AUD/USD spiked to 1.0857), currencies are broadly unchanged and the EUR/USD is lower, possibly reflecting positioning unwinds. The LTRO outcome opens the way for further positive risk moves (high-beta, non-Japan Asia, lower DXY) but recent price action suggests to us that the rally is fatigued." Net: this means that following settlement, European banks will park not €500 billion but up to €810 billion with the ECB, on which they will collect 25 bps (while paying 1%, aka inverse carry as described here first). It also means that in three years Europe's bank will have to not only pay the ECB €1 trillion in case (assuming there is no perpetual rollover of the LTRO, which there will be), but also delever by another €2.5 billion, for net asset drop of €3.5 trillion. Good luck building up shareholder equity by the same amount to offset unchanging liabilities.
But this is nothing new. What is, at least to Mario Draghi who openly refuted it at the last ECB press conference, is that banks are openlydenying they used the second LTRO.
- ING GROEP DIDN'T TAP 3-YR ECB LOANS, SPOKESMAN SAYS
- ABN AMRO DIDN'T TAP ECB 3-YR LOANS
- ASR NEDERLAND DIDN'T TAP ECB 3-YR LOANS
and the piece de resistance:
- King Says U.K. Doesn’t Need LTRO as Banks Have Enough Liquidity
But, but, why would they do that if there is no stigma. Hmmm Mario? Maybe, just maybe, and for the same reason why banks loathe to borrow money from the Fed's discount window, because there is.
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