AM | @Mackfinance
"A large range of uncertainty" — The Bank of England
. John Vickers: "The Bank of England must think again on systemic risk", Financial Times, 14 February 2016.
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Showing posts with label Banking. Show all posts
Showing posts with label Banking. Show all posts
Sunday, February 14, 2016
Saturday, February 13, 2016
NOW EVERYBODY TALKS ABOUT THE YIELD CURVE!
AM | @Mackfinance
"Curve inversion will come quickly" — Harvinder Sian
The yield curve, one of our favorite indicators, is making an astonishing comeback. Now everybody seems to talk about it! Here are some links to recent articles on the yield curve.
. Robin Wigglesworth: “Yield curve recession indicator sends warning on US economy”, Financial Times, 13 February 2016.
. Robin Wigglesworth: “US yield curve narrows to 8-year low”, Financial Times, 10 February 2016
. Bloomberg: “Citigroup: The Best Predictor of a U.S. Recession Will Resurface Sooner Than You Might”, 2 December, 2015
. Dean Croushore & Katherine Marsten: “The Continuing Power of the Yield Spread in Forecasting Recessions”, Federal Reserve Bank of Philadelphia, Research Paper No. 14-5, February 2014
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"Curve inversion will come quickly" — Harvinder Sian
The yield curve, one of our favorite indicators, is making an astonishing comeback. Now everybody seems to talk about it! Here are some links to recent articles on the yield curve.
. Robin Wigglesworth: “Yield curve recession indicator sends warning on US economy”, Financial Times, 13 February 2016.
. Robin Wigglesworth: “US yield curve narrows to 8-year low”, Financial Times, 10 February 2016
. Bloomberg: “Citigroup: The Best Predictor of a U.S. Recession Will Resurface Sooner Than You Might”, 2 December, 2015
. Dean Croushore & Katherine Marsten: “The Continuing Power of the Yield Spread in Forecasting Recessions”, Federal Reserve Bank of Philadelphia, Research Paper No. 14-5, February 2014
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Friday, February 12, 2016
THE ECONOMIST ON EUROPEAN BANKS
AM | @Mackfinance
The Economist argues that US banks have cyclical problems, but European banks have structural ones. This is the article:
FOR those who worry that a repeat of the crisis of 2007-08 is imminent, this week brought fresh omens. Shares of big banks tumbled; despite a mid-week rally, American lenders are down by 19% this year, European ones by 24% . The cost of insuring banks’ debts against default rose sharply, especially in Europe. The boss of Deutsche Bank felt obliged to declare that the institution he runs is “absolutely rock solid”; Germany’s finance minister professed to have no concerns (thereby adding to the concerns). This is not 2008: big banks are not about to topple. But there are reasons to worry, and many of them converge on one country.
Start with the better news. Banks are more strongly capitalised than they were. Even in Europe, where lenders have been slower than their American counterparts to raise capital, banks have plumped up their core equity cushions from an average of 9% in 2009 to 12.5% in 2015. Managers at European banks are making a renewed effort to adjust to the post-crisis landscape. New rules on everything from capital to liquidity are forcing them to change. John Cryan, Deutsche’s newish co-chief executive, was brought in to trim its investment bank. He is jettisoning whole divisions, and suspended the dividend this year and last. Credit Suisse is undergoing similar surgery. Just now, this is weighing on the banks’ share prices. Yet, however painful for investors, the sensible goal is ultimately to create slimmer, safer, more profitable outfits.
Also salutary, if painful, is how investors in bank debt are coming to understand that they bear greater risk than they did. New European rules that came fully into force at the start of this year stipulate that troubled banks must deal with capital shortfalls by “bailing in” holders of bank bonds before any call is made on the taxpayer. The chance that bondholders might lose money suddenly seems more real. The turmoil at Deutsche this week stemmed partly from fear that the bank might struggle to pay interest next year on a type of bond that is designed to act as a buffer in a crisis. There are some design flaws in the bail-in regime, but the possibility that European banks are at last repairing themselves at a cost to their investors is the silver lining to this week’s spasms.
The clouds, alas, still loom. One source of anxiety is the health of the world economy. The factors that spook markets more broadly—the slowdown in China, plunging commodity prices and indebted energy firms, political upheaval from Greece to New Hampshire—all weigh heavily on banks in particular. Banks do well when the economies they serve are growing, and miserably when they are not. The receding prospect of higher interest rates leaves American banks with less hope of widening the margin between the rates they pay depositors and what they charge for loans. In Japan, where bank shares have fallen by 24% this month, and Europe central banks have imposed negative rates, in effect levying a fee on some reserves—one that banks have not yet been able to pass on to depositors. With the economic outlook growing gloomier, margins being squeezed and restructuring costs still hitting profits, investors have good reason to fret.
Worse, some countries appear to have taken so long to deal with their banks that they will now struggle to clean them up at all. The IMF reckons that the total amount of non-performing debt in Europe was around €1 trillion ($1.13 trillion) at the end of 2014. Bail-in is an especially ugly prospect in countries where bank debt is owned not only by diversified financial institutions but also by local retail investors. Under such conditions, politicians may find that they cannot force the cost of cleaning up balance-sheets on voters without causing uproar.
Rome is where the hurt is
No country is more impaled on this dilemma than Italy. The gross value of non-performing loans makes up a whopping 18% of their total lending; retail investors own some €200 billion of bank bonds, equivalent to 12% of GDP. A government plan to buy bad debts from the banks at close to face value would fall foul of European rules against “state aid”. But selling the loans at a significant discount would force Italian banks to recognise losses, some of which could be borne by retail investors. The prime minister, Matteo Renzi, headed down this road late last year, when the efforts to save four small banks clobbered the savings of individual Italians and seemingly resulted in a high-profile suicide. He will not want to do so again.
The European Union and the Italian government recently agreed on a half-baked alternative to bail-in, though few think it will cleanse banks’ balance-sheets. Instead Italy seems trapped between the rock of hurting small savers and the hard place of a banking system strangled by bad debts. If Mr Renzi cannot negotiate his way round the new rules on bail-in, Italy’s banks and economy risk years of more stagnation, poisoning relations with the EU. Behind this week’s banking headlines is the threat of something very bad coming out of Italy.
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The Economist argues that US banks have cyclical problems, but European banks have structural ones. This is the article:
FOR those who worry that a repeat of the crisis of 2007-08 is imminent, this week brought fresh omens. Shares of big banks tumbled; despite a mid-week rally, American lenders are down by 19% this year, European ones by 24% . The cost of insuring banks’ debts against default rose sharply, especially in Europe. The boss of Deutsche Bank felt obliged to declare that the institution he runs is “absolutely rock solid”; Germany’s finance minister professed to have no concerns (thereby adding to the concerns). This is not 2008: big banks are not about to topple. But there are reasons to worry, and many of them converge on one country.
Start with the better news. Banks are more strongly capitalised than they were. Even in Europe, where lenders have been slower than their American counterparts to raise capital, banks have plumped up their core equity cushions from an average of 9% in 2009 to 12.5% in 2015. Managers at European banks are making a renewed effort to adjust to the post-crisis landscape. New rules on everything from capital to liquidity are forcing them to change. John Cryan, Deutsche’s newish co-chief executive, was brought in to trim its investment bank. He is jettisoning whole divisions, and suspended the dividend this year and last. Credit Suisse is undergoing similar surgery. Just now, this is weighing on the banks’ share prices. Yet, however painful for investors, the sensible goal is ultimately to create slimmer, safer, more profitable outfits.
Also salutary, if painful, is how investors in bank debt are coming to understand that they bear greater risk than they did. New European rules that came fully into force at the start of this year stipulate that troubled banks must deal with capital shortfalls by “bailing in” holders of bank bonds before any call is made on the taxpayer. The chance that bondholders might lose money suddenly seems more real. The turmoil at Deutsche this week stemmed partly from fear that the bank might struggle to pay interest next year on a type of bond that is designed to act as a buffer in a crisis. There are some design flaws in the bail-in regime, but the possibility that European banks are at last repairing themselves at a cost to their investors is the silver lining to this week’s spasms.
The clouds, alas, still loom. One source of anxiety is the health of the world economy. The factors that spook markets more broadly—the slowdown in China, plunging commodity prices and indebted energy firms, political upheaval from Greece to New Hampshire—all weigh heavily on banks in particular. Banks do well when the economies they serve are growing, and miserably when they are not. The receding prospect of higher interest rates leaves American banks with less hope of widening the margin between the rates they pay depositors and what they charge for loans. In Japan, where bank shares have fallen by 24% this month, and Europe central banks have imposed negative rates, in effect levying a fee on some reserves—one that banks have not yet been able to pass on to depositors. With the economic outlook growing gloomier, margins being squeezed and restructuring costs still hitting profits, investors have good reason to fret.
Worse, some countries appear to have taken so long to deal with their banks that they will now struggle to clean them up at all. The IMF reckons that the total amount of non-performing debt in Europe was around €1 trillion ($1.13 trillion) at the end of 2014. Bail-in is an especially ugly prospect in countries where bank debt is owned not only by diversified financial institutions but also by local retail investors. Under such conditions, politicians may find that they cannot force the cost of cleaning up balance-sheets on voters without causing uproar.
Rome is where the hurt is
No country is more impaled on this dilemma than Italy. The gross value of non-performing loans makes up a whopping 18% of their total lending; retail investors own some €200 billion of bank bonds, equivalent to 12% of GDP. A government plan to buy bad debts from the banks at close to face value would fall foul of European rules against “state aid”. But selling the loans at a significant discount would force Italian banks to recognise losses, some of which could be borne by retail investors. The prime minister, Matteo Renzi, headed down this road late last year, when the efforts to save four small banks clobbered the savings of individual Italians and seemingly resulted in a high-profile suicide. He will not want to do so again.
The European Union and the Italian government recently agreed on a half-baked alternative to bail-in, though few think it will cleanse banks’ balance-sheets. Instead Italy seems trapped between the rock of hurting small savers and the hard place of a banking system strangled by bad debts. If Mr Renzi cannot negotiate his way round the new rules on bail-in, Italy’s banks and economy risk years of more stagnation, poisoning relations with the EU. Behind this week’s banking headlines is the threat of something very bad coming out of Italy.
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Sunday, March 10, 2013
BONDS & BANK LENDING: GENERAL NOTES
. Europe. Before the financial crisis, low funding costs enjoyed by banks encouraged them to embark on a lending spree giving corporations little reason to tap capital markets —
until the debt crisis hit. "Since the financial crisis, corporate treasurers have become more nervous aboyt relying just on bank funding and so they are increasingly trying to tap into the corporate debt markets when they can. Banks are also perhaps more reluctant to lend in the same way as before the crisis", argues Monica Insoll at Fitch Ratings. See Raplh Atkins & Michael Stothard: "Blue-chips look beyond Europe's banks for funding", Financial Times, August 15, 2012.
. Europe. "Compared with the US, and to a lesser extent the UK, the eurozone corporate sector remains over-dependent on banks for funding. If the eurozone economy is not to be stricken by hypothermia, someone will have to offset the contractionary effect of bank deleveraging." (John Plender: "Europe faces vicious circle of disorderly bank deleveraging", Financial Times, 25 April 2012). "Traditionally, the continent's companies have relied far more heavily than their US counterparts on banks for external funding".
. Europe. European bond issuance slows down in February 2013. But 2012 was busy: €188bn of bonds sold by non-financial corporations. (The concept of "benchmark-sized bonds": a benchmark bond is typically at least €500m in size). In other words, the bond market is not for small businesses! The obvious candidates to tap bond markets —rather than turn to banks — are larger companies with good credit ratings. A survey bby Fitch of 201 rated companies showed that bonds accounted for 73% of debt at the end of 2011, up from 53% in 2008 (80% to 85% for the largest issuers). In February 2013, non-financials sold €9.75bn of benchmark-sized bonds, vs. €20.7bn in January.
. Europe. Siemens AG sold a three-part deal, two parts of which were in euros, the third in dollars, raising €2.25bn (February 2013). Among French firms, JC Decaux sold a €500m bond. In 2012, Volkswagen issued a record amount of bonds; August 2012: £250m of three-year debt at 110 bps over gilt yields, €750m of 18-month floating rate notes in semi-privte deal arranged by Bank of America Merril Lynch. August 2012: BP sells $650m in fiver-year eurodollar bonds at 70bps over mid-swaps.
. Europe. Markit's iBoxx Euro corporate index measures the performance of investment grade debt issued in euros.
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. Europe. "Compared with the US, and to a lesser extent the UK, the eurozone corporate sector remains over-dependent on banks for funding. If the eurozone economy is not to be stricken by hypothermia, someone will have to offset the contractionary effect of bank deleveraging." (John Plender: "Europe faces vicious circle of disorderly bank deleveraging", Financial Times, 25 April 2012). "Traditionally, the continent's companies have relied far more heavily than their US counterparts on banks for external funding".
. Europe. European bond issuance slows down in February 2013. But 2012 was busy: €188bn of bonds sold by non-financial corporations. (The concept of "benchmark-sized bonds": a benchmark bond is typically at least €500m in size). In other words, the bond market is not for small businesses! The obvious candidates to tap bond markets —rather than turn to banks — are larger companies with good credit ratings. A survey bby Fitch of 201 rated companies showed that bonds accounted for 73% of debt at the end of 2011, up from 53% in 2008 (80% to 85% for the largest issuers). In February 2013, non-financials sold €9.75bn of benchmark-sized bonds, vs. €20.7bn in January.
. Europe. Siemens AG sold a three-part deal, two parts of which were in euros, the third in dollars, raising €2.25bn (February 2013). Among French firms, JC Decaux sold a €500m bond. In 2012, Volkswagen issued a record amount of bonds; August 2012: £250m of three-year debt at 110 bps over gilt yields, €750m of 18-month floating rate notes in semi-privte deal arranged by Bank of America Merril Lynch. August 2012: BP sells $650m in fiver-year eurodollar bonds at 70bps over mid-swaps.
. Europe. Markit's iBoxx Euro corporate index measures the performance of investment grade debt issued in euros.
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[BANKS] ON THE ECB'S "SAFETY VALVE"
Nice3 WSJ article on the problems faced by the ECB (*). The "safety valve" has worked, and a complete meltdown has been avoided. But credit is still not flowing to businesses in Southern Europe.
Mario Draghi has toiled to repair the euro zone’s broken
financial engine, fueling banks with cheap loans and installing a safety valve
through an openended bond-buying program. This has calmed financial markets. But the European Central Bank president
still can’t seem to fix the transmission. Until that happens, further rate cuts
or bank- support measures may have little effect. As it is, the ECB is expected
to hold rates steady at 0.75% after Thursday’s monthly meeting.
A cut can’t be
ruled out with inflation below the ECB’s 2% target, at 1.8%, and expected to
fall more in coming months. Even if a cut occurs, though, it wouldn’t do much for countries in Southern
Europe. In healthy economies such as Germany, lower ECB rates feed through the
economy by spurring consumer borrowing and business financing for investment.
Not so in Spain and Italy. Their economies are mired in deep recessions and
unemployment is at euro- era records. Political uncertainty remains high,
especially in Italy. There, risk- averse banks aren’t likely to cut rates for
privatesector clients.
“If the ECB cuts interest rates, it does so to the benefit of Germany but not
Italy, that’s the whole problem with the transmission mechanism,” said
UniCredit’s Marco Valli. The ECB offered a grim reminder of this on Tuesday. Small businesses in
Spain, Italy and Portugal paid much higher rates for loans in January than their
German counterparts, according to a monthly report. Policy makers could try to narrow this gap. One option is to lower the
discounts, or haircuts, that they apply to small- business loans posted by
commercial banks as collateral for ECB funds.
That would encourage banks to extend more of these loans. But the ECB tinkered with collateral rules before with little effect. Relaxing them further may stir the rancor of the bank’s conservative wing, led by Germany’s Bundesbank. That leaves the ECB in a tight spot. Car registrations in Mr. Draghi’s native Italy plunged 17% in February from a year earlier. They were down 12% in France. Until the ECB’s top mechanic finds a way to juice the economy, European households aren’t likely to rev their own spending engines.
(*) Brian Blackstone: "ECB Mechaninc Gropes for Right Wrench", Wall Street Journal, 6 March 2013.
(See also this WSJ editorial, 7 March 2013: "[Recent ECB steps have] helped prevent panic in the bond markets despite the unsettled Italian election result. But preventing disaster isn't the same as promoting growth. The monetary transmission mechanism, whereby ECB policy decisions influence the real economy, remains broken. In the euro area as a whole, household and company borrowing rates are about 1 to 1.2 percentage points higher than might be expected based on Euribor and sovereign-bond yields, based on JP Morgan, with particular problems in Italy, Spain, Portugal and the Netherlands.)
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That would encourage banks to extend more of these loans. But the ECB tinkered with collateral rules before with little effect. Relaxing them further may stir the rancor of the bank’s conservative wing, led by Germany’s Bundesbank. That leaves the ECB in a tight spot. Car registrations in Mr. Draghi’s native Italy plunged 17% in February from a year earlier. They were down 12% in France. Until the ECB’s top mechanic finds a way to juice the economy, European households aren’t likely to rev their own spending engines.
(*) Brian Blackstone: "ECB Mechaninc Gropes for Right Wrench", Wall Street Journal, 6 March 2013.
* * *
(See also this WSJ editorial, 7 March 2013: "[Recent ECB steps have] helped prevent panic in the bond markets despite the unsettled Italian election result. But preventing disaster isn't the same as promoting growth. The monetary transmission mechanism, whereby ECB policy decisions influence the real economy, remains broken. In the euro area as a whole, household and company borrowing rates are about 1 to 1.2 percentage points higher than might be expected based on Euribor and sovereign-bond yields, based on JP Morgan, with particular problems in Italy, Spain, Portugal and the Netherlands.)
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Friday, March 8, 2013
[MONETARY POLICY] EARLY EFFECTS OF LTRO (March 2012)
[Old but useful info!] A very interesting and prescient Financial Times article by Patrick Jenkins, Mary Watkins and Rachel Sanderson (FT, Friday Marc 2 2012):
Despite the smattering of criticism —form Bundesbank president Jens Weidmann and from Standard Chartered chief executive Peter Sands— Mario Draghi's injection of three-year European Central Bank momey into the eurozone banking system remains widely popular. The second phase of the so-called long-term refinancing operation on Wednesday attracted funding requests from 800 banks for a combined €529.5bn, with Italian and Spanish banks again dominating the take-up of funds.
Although there was no official disclosure from the ECB of who got what, various banks and associations announced a selection of data. Overall, Italian banks accounted for €139bn of the total, with Spanish banks estimated to have been allocated €110-€120bn. One surprise was that half of the banks involved were German, though together they have thought to have accounted for less than €100bn of the funds, suggesting the money went to small regional savings banks.
Two institutions —Italy's Intesa San Paolo and Spain's Bankia— appear to have dominated the auction, taking €24bn and €25bn respectively, almost twice as much as the next tier of banks. The question now is what banks will do with the funds. Many are expected to play a carry trade on their own domestic government debt, making the most on the spread between the 1 per cent interest on the LTRO funds and rates on Italian government bonds, for example, of as much as 5 per cent.
Figures from the ECB showed that banks in Italy and Spain increased their holdings of sovereign bonds in January by about €50bn. There has been a corresponding drop in government's cost of funding since the start of the year. Yields on Italian 10-year debt fell below 5 per cent yesterday for the first time in August, having touched 7.5 per cent last year. There is less confidence about the flow-through of LTRO funds to the 'real' economy. "Credit conditions are still tight in Spain, Italy and Eastern Europe", says Huw van Steenis, analyst at Morgan Stanley.
Funding to Italian business fell by €20bn in December and again in January, though Andrea Belratti, superviserory board chairman at Intesa, suggests there may now be a change of mood. "We think it's a win-win situation from the point of view of the bank", he told the Financial Times, indicating that LTRO funds would be directed both to government bonds and lending to corporate clients.
That win-win could extend to banks' broader funding base, too. The LTRO has led to a pick-up in bank bond issuance after a slow end to 2011 when low confidence led to a dearth of deals, particularly in the senior unsecured market, traditionally the bedrock of the bank funding market. The confidence boost from the LTRO has given investors greater appetite to buy bank paper again, while the fall in government debt yields that accompanied the operations has flowed through to lower banks's own funding costs, too.
In January, there was a surge of issuance in covered bonds —a highly collateralised form of debt— as banks took advantage of improved market sentiment to get deals done and cash-rich investors felt confident enough to recommit to the eurozone. The senior unsercured dent market also re-opened after months of disruption. "Market conditions, partially as a result of the LTRO programme in December, allowed banks to raise senior senior unsecured financing at attractive levels after having limited access in the second halft of 2011", says Chris Tuffey, co-head of European credit capital markets at Credit Suisse.
By February, some of that confidence had split over the southern European countries, which had been in effect locked out of the public markets for months amid the sovereign debt crisis. Led by Intesa and Santander, Italian and Spanish banks have also been keen issuers. "Spanish banks were the most active issuers in February despite also being some of the heaviest takers of ECB liquidity in December", Barclays Capital credit analysts wrote in a note to clients, predicting that the second injection of ECB three-year funding could spur a glut of commercial market bond issuance.
As well as the indirect benefits of the LTRO, some say cheap ECB money is being used by banks to buy other banks' bonds. Nagging worries remain; the exercise does nothing to plug remaining capital deficits at a selection of banks, particularly in Spain and Italy. But with a virtuous cycle of funding helping so many banks in such different ways, the critics of Mr. Darghi's policy seem set to remain in the fringes for some time to come.
Intesa San Paolo [€12.0bn Dec. 2012, €24.0bn Feb. 2013]; Bankia [€15.0bn Dec. 2011, €25.0bn Feb 2013]; BBVA [€11.0bn Dec 2011; €11.0bn Feb. 2012]; UniCredit [€13.5bn Dec. 2012, €10.0bn]; Dexia €20.0bn Dec. 2012; €12.5bn Feb. 2013].
_______________
Despite the smattering of criticism —form Bundesbank president Jens Weidmann and from Standard Chartered chief executive Peter Sands— Mario Draghi's injection of three-year European Central Bank momey into the eurozone banking system remains widely popular. The second phase of the so-called long-term refinancing operation on Wednesday attracted funding requests from 800 banks for a combined €529.5bn, with Italian and Spanish banks again dominating the take-up of funds.
Although there was no official disclosure from the ECB of who got what, various banks and associations announced a selection of data. Overall, Italian banks accounted for €139bn of the total, with Spanish banks estimated to have been allocated €110-€120bn. One surprise was that half of the banks involved were German, though together they have thought to have accounted for less than €100bn of the funds, suggesting the money went to small regional savings banks.
Two institutions —Italy's Intesa San Paolo and Spain's Bankia— appear to have dominated the auction, taking €24bn and €25bn respectively, almost twice as much as the next tier of banks. The question now is what banks will do with the funds. Many are expected to play a carry trade on their own domestic government debt, making the most on the spread between the 1 per cent interest on the LTRO funds and rates on Italian government bonds, for example, of as much as 5 per cent.
Figures from the ECB showed that banks in Italy and Spain increased their holdings of sovereign bonds in January by about €50bn. There has been a corresponding drop in government's cost of funding since the start of the year. Yields on Italian 10-year debt fell below 5 per cent yesterday for the first time in August, having touched 7.5 per cent last year. There is less confidence about the flow-through of LTRO funds to the 'real' economy. "Credit conditions are still tight in Spain, Italy and Eastern Europe", says Huw van Steenis, analyst at Morgan Stanley.
Funding to Italian business fell by €20bn in December and again in January, though Andrea Belratti, superviserory board chairman at Intesa, suggests there may now be a change of mood. "We think it's a win-win situation from the point of view of the bank", he told the Financial Times, indicating that LTRO funds would be directed both to government bonds and lending to corporate clients.
That win-win could extend to banks' broader funding base, too. The LTRO has led to a pick-up in bank bond issuance after a slow end to 2011 when low confidence led to a dearth of deals, particularly in the senior unsecured market, traditionally the bedrock of the bank funding market. The confidence boost from the LTRO has given investors greater appetite to buy bank paper again, while the fall in government debt yields that accompanied the operations has flowed through to lower banks's own funding costs, too.
In January, there was a surge of issuance in covered bonds —a highly collateralised form of debt— as banks took advantage of improved market sentiment to get deals done and cash-rich investors felt confident enough to recommit to the eurozone. The senior unsercured dent market also re-opened after months of disruption. "Market conditions, partially as a result of the LTRO programme in December, allowed banks to raise senior senior unsecured financing at attractive levels after having limited access in the second halft of 2011", says Chris Tuffey, co-head of European credit capital markets at Credit Suisse.
By February, some of that confidence had split over the southern European countries, which had been in effect locked out of the public markets for months amid the sovereign debt crisis. Led by Intesa and Santander, Italian and Spanish banks have also been keen issuers. "Spanish banks were the most active issuers in February despite also being some of the heaviest takers of ECB liquidity in December", Barclays Capital credit analysts wrote in a note to clients, predicting that the second injection of ECB three-year funding could spur a glut of commercial market bond issuance.
As well as the indirect benefits of the LTRO, some say cheap ECB money is being used by banks to buy other banks' bonds. Nagging worries remain; the exercise does nothing to plug remaining capital deficits at a selection of banks, particularly in Spain and Italy. But with a virtuous cycle of funding helping so many banks in such different ways, the critics of Mr. Darghi's policy seem set to remain in the fringes for some time to come.
Intesa San Paolo [€12.0bn Dec. 2012, €24.0bn Feb. 2013]; Bankia [€15.0bn Dec. 2011, €25.0bn Feb 2013]; BBVA [€11.0bn Dec 2011; €11.0bn Feb. 2012]; UniCredit [€13.5bn Dec. 2012, €10.0bn]; Dexia €20.0bn Dec. 2012; €12.5bn Feb. 2013].
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