Still super, Mario?
By Tom Burgis and Esther Bintliff on the news desk in London with contributions from our correspondents around the world. All times GMT.
Another big day for “Super” Mario Draghi, the European Central Bank president. 800 banks borrowed a total of €529bn under the ECB’s liquidity programme — more than last time. We were watching too for ripples from Dublin’s decision to hold a referendum on the eurozone fiscal pact.
19.20: We’re going to wrap up the live blog for today, so here’s a final round-up of today’s events:
- In round two of the European Central Bank’s Long-Term Refinancing Operation (or LTRO), 800 European banks borrowed €529.5bn
- A larger number of banks borrowed money than last time (when 523 banks borrowed €489bn)
- About €310bn of net new liquidity was added to the system
- More than two thirds of the volume was taken up by banks in three countries, thought to be Spain, Italy and France. Among the biggest takers of funds was Italy’s Intesa SanPaolo, with €24bn, double the amount it took in the December operation. UK bank Lloyds is believed to have been the biggest non-eurozone taker of funds, receiving €11.4bn.
- In the markets, risk assets were initially firm on the back of the LTRO figures, but later fell back as Fed chairman Ben Bernanke spoke to Congress and dampened speculation that further monetary easing was on its way
- On the plus side, US growth data for the fourth quarter was revised upwards, from 2.8 per cent to 3 per cent
- The FT’s Brussels bureau chief Peter Spiegel got a copy of the draft conclusions from the EU council summit that begins tomorrow
- EU Commission president Barroso met with Greek prime minister Lucas Papademos – see our 17.58 update
18.55: The proposed Irish referendum on the eurozone treaty has claimed its first political victim, says our Dublin correspondent Jamie Smyth:
Eamon O’Cuiv, deputy leader of Fianna Fail and grandson of former Irish president Eamon de Valera, resigned last night after expressing reservations over the party’s decision to support the fiscal compact in the upcoming referendum. The resignation reflect unease among some grassroots supporters in the party about the treaty.
17.58: Just in case you were getting ahead of yourselves, a little reminder: the second Greek bail-out programme may have been “agreed in principle” but it will only be “formally launched… provided the agreed conditions are met and the private sector bond exchange is successful”.
Barroso with Lucas Papademos today in Brussels. GEORGES GOBET/AFP/Getty Images
These are not our words but those of the president of the European Commission, José Manuel Barroso, who spoke to reporters following a meeting with the Greek prime minister today.
Not to give you the wrong impression; the tone of the speech overall was more encouraging towards Greek PM Lucas Papademos. Barroso desperately tried to shift the focus away from the rhetoric of painful austerity and towards EU efforts to boost Greece’s long-term growth prospects (our emphasis):
“The second programme has a very strong focus on reforms that we believe will transform the capacity of the Greek economy to generate growth and jobs.
It is important that this is recognized, so that the second programme does not, like the first, suffer from misperceptions as being all about fiscal consolidation. Of course fiscal consolidation is indispensable but this is not just a programme of fiscal consolidation, it is a programme for structural reforms, competitiveness and growth in Greece…”
He also briefly referred to on-the-ground monitoring that the troika of international lenders (IMF, ECB and European Commission) have agreed will take place to ensure Athens sticks to its promises, couching what has been a controversial proposal in rather rosy terms:
The aim of this meeting was simple: to see how we can work more effectively together to enable Greece to make the most of its cohesion funding at this critical time and also to see how we can with this reinforced monitoring and reinforced technical assistance do more to create hope, hope for Greece.
There was a slightly worrying line in the official text of his statement, but we are *almost* certain that it is merely an unfortunate spelling mistake:
…we should have no illusions: the crucial part of the solution is off course in the hands of the Greek government, the Greek administration and, at the end, the Greek people.
17.17: The other Mario – Italy’s technocrat prime minister Mario Monti – is feeling optimistic about the downward trend in bond spreads, Bloomberg reports:
“I don’t think it is likely” that spreads will widen again, Monti said in an interview today at the prime minister’s 16th-century residence in central Rome. “The unpredictability of spreads is not negligible. But we see now in the case of Italy a steady, although gradual decline in the last several weeks. I don’t see honestly any reasons why this course should change.”
He is also fairly relaxed about Germany’s reluctance to talk at this week’s summit about expanding the size of the eurozone “firewall”:
“They didn’t say they don’t want to discuss this in March; they prefer not to discuss this on the 1st of March. March has, luckily enough, 31 days.”
17.00 Currency analysts at Brown Brothers Harriman say it’s not particularly surprising that more banks took part in the ECB’s LTRO operation (800 vs 523 last time):
The relaxed collateral rules in seven countries, including Spain and Italy, were partly designed to help smaller institutions. While the greater participation would suggest the lack of stigma, a more telling indicator will be the relative performance of the shares of those banks that participated and those that didn’t. Consequently, financial shares are among the strongest in Europe. The larger number of banks participating also translates into a lower average take down. In the first LTRO, banks took an average of €935mln. At today’s operation the banks took an average of €691mln.
16.43: Reuters is quoting a “senior banking source” as saying that Italian banks took more than €130bn of the 3-year ECB funds on Wednesday. We haven’t independently verified this yet, but interesting if true. In the first LTRO operation, Italian banks borrowed €116bn.
16.26: Vivianne Rodrigues from our New York markets team says Bernanke’s testimony rained on the parade of some investors, as they took in the message that more economic stimulus/quantitative easing would not necessarily be forthcoming:
AP Photo/Alex Brandon
The US dollar rose, Treasuries fell and stocks on Wall Street pared earlier gains after Chairman Ben Bernanke’s comments dampened expectations for more additional stimulus in order to boost economic growth.
The dollar rallied and the benchmark S&P 500 Index fell 0.2 per cent after gaining as much as 0.4 per cent earlier as investors welcomed a report showing that US GDP rose at a revised 3 percent annual rate in the fourth quarter.
“With the risk of another round of asset purchases declining, the Fed is expected to keep its balance unchanged which is a stark contrast to the ECB who increased its balance sheet significantly with today’s LTRO,” said Kathy Lien, a director for market research at GFT Forex.
“This dynamic explains why the EUR/USD fell so steeply on the back of Bernanke’s speech – one central bank will be keeping their balance sheet unchanged while the other takes actions to expand it,” Ms Lien added.
In late morning trading in New York, the euro hit a session low of $1.3346.
16.20: Robin Harding, the FT’s US economics editor, translates an important phrase in Ben Bernanke’s comments to Congress today:
15.55: Unlike the Irish, the Dutch won’t get the chance to vote on the EU’s new fiscal treaty. The Netherlands parliament today voted against a proposal for a referendum, says Reuters:
Both the Freedom Party, the minority government’s key ally which is against euro zone bailouts, and the Socialists, a euro-sceptic opposition party, had asked in separate motions for a referendum on the fiscal treaty. They said the pact would transfer power to the EU and could impact Dutch state finances…
[But] a broad majority consisting of the ruling Liberal and Christian Democrat parties, and the opposition Labour, Liberal Democrat, GreenLeft and other smaller parties, voted against the referendum proposal as expected.
15.34: Ireland has twice rejected EU treaties, only to approve them in second referendums – e.g. in 2008 the Lisbon treaty was rejected, but was then approved 18 months later. With this in mind, the illustrator Annie West has ‘caught a glimpse’ of how the ballot paper for this year’s referendum might look… (via yfrog.com)
15.15: Ben Bernanke, chairman of the US federal reserve, is speaking to Congress, and he’s moving the markets, as this tweet from Lorcan Roche Kelly, Europe strategist for Trend Macrolytics suggests:
Some brief Bernanke highlights via Reuters:
- Sustaining a highly accommodative stance for monetary policy is consistent with promoting Feds goals on jobs, inflation
- Decline in unemployment rate over past year somewhat more rapid than expected given growth pace
- Longer-term inflation expectations appear consistent with view that inflation will remain subdued
14.32 While Europe remains, in the eyes of many, “the sick man of the global economy”, the US enjoys somewhat better health. Revised data from the Bureau of Economic Analysis shows that the economy grew 3 per cent in the fourth quarter, reports Robin Harding:
The US economy grew slightly faster than previously thought in the final quarter of 2011 in another encouraging sign of stable recovery.
The Bureau of Economic Analysis revised its initial estimate of annualised growth in the fourth quarter from 2.8 per cent up to 3 per cent, ahead of market expectations of an unchanged estimate.
14.25 On the subject of LTRO: Part Deux, John Authers says a credit crunch may have been averted, but will a third injection be needed?
13.43 Over to Athens and the FT’s Kerin Hope for news of a latter-day Marshall Plan to get Greece out of the hole it’s in.
Greek premier Lucas Papademos is clearly feeling confident that parliament will tonight wave through his coalition government’s second “omnibus” bill of reforms, meeting the end-of-February deadline set by the country’s international creditors. Last night’s package of wage and pension cuts was approved by a comfortable two-thirds majority.
Papademos headed to Brussels for a meeting today with European Commission president José Manuel Barroso to discuss a different kind of package: some €19bn of investment funding over the next four years to help pull Greece out of its deepest recession in memory.
About €12bn of what’s been dubbed a new Marshall Plan — after the US aid package credited with setting Greece on the road to recovery after the ravages of the Second World War — would come from European Union structural funds, and the other €7bn from the European Investment Bank.
The structural funds alone could help finance about 180 projects and provide more than 100,000 jobs across the country, at a time when unemployment has reached almost 21 per cent.
Greece has been slow to draw down its current allocation of EU funding, largely because of administrative inefficiency, so today’s talks will focus on ways of disbursing money more effectively, according to a government official.
Setting up a new Athens-based development bank is one idea that’s been floated, while the EIB has proposed backing two separate funds to support small and medium businesses, and big infrastructure projects delayed because of the country’s continuing crisis.
From Stockholm, the FT’s Michael Stothard reports that, as expected, parliament next door in Finland has given its assent to the eurozone’s €130bn second bail-out of Greece, which is meant to accompany the debt restructuring.
The Finnish parliament has agreed to support the second Greek bailout following a heated debate in which the major opposition party argued that Greece should be forced to leave the eurozone.
A total of 111 parliamentarians voted in favour a new bailout package for Greece, with 72 were against it and 16 absent. Only one member of the six-party coalition government, which has a majority of 124 out of 200 seats in parliament, voted against. The government only needed a majority vote to approve the bailout.
Timo Soini, the leader of the opposition Finns Party, urged lawmakers to reject the new loan package. According to the proposal put forward by Prime Minister Jyrki Katainen, Finland’s direct contribution to the new bail-out will amount to €1.25bn.
The eurozone bailout has been divisive in Finland. Last year voters showed their dissatisfaction with the then proposed bailout of Portugal but handing the previously obscure anti-European Finns Party a fifth of the votes.
13.14 BREAKING NEWS Lloyds of the UK has said it borrowed £11.4bn in the second round of cheap three-year loans from the ECB (see 10.30 – 11.15). In total, 800 banks borrowed €529bn. Lloyds did not tap the first such LTRO in December.
Reuters quotes a Lloyds statement saying:
“Lloyds Banking Group can confirm it has drawn £11.4bn under the LTRO for an initial term of three years. The aim is to part-fund a pool of non-core euro denominated assets.”
On Monday the FT reported that Lloyds and RBS, the UK’s two big part-nationalised banks, planned to borrow a combined amount of about €15bn from the liquidity scheme. No word yet on how much RBS, which took about €5bn of LTRO money in December, borrowed this time.
13.04 Ahead of tomorrow’s meeting of the International Swaps & Derivatives Association to rule on whether the restructuring of Greek debt constitutes a “credit event” that would trigger payouts on default insurance, Bloomberg reports that the amount of Greek debt protected by credit-default swaps has risen to a two-month high of $3.25bn.
The number of Greek swaps outstanding rose for a fifth week to 4,290 contracts, according to the Depository Trust & Clearing Corp. It costs $7.3m upfront and $100,000 annually to insure $10 million of Greek debt for five years, signalling a 94 per cent probability of default within that time.
The ISDA meeting has become something of a hot potato due to the European Central Bank having protected its own €55bn holdings from a loss that is due to be “voluntarily” inflicted on private holders of Greek debt. ISDA says it plans to examine whether the ECB’s action creates a special class of bondholders that are treated differently from the rest. As the FT’s Peter Spiegel points out over on the Brussels Blog: “In the bond market world, that’s a no-no.”
An intriguing twist to this tale emerged last night when Bloomberg reported – citing unnamed officials – that the European Investment Bank, the EU’s banking arm, is getting a similar exemption. Admittedly, its holdings of Greek sovereign bonds are much smaller than the ECB’s, at a mere €310m. But you can almost hear the steam coming from the ears of private investors whose own holdings have taken a 75 per cent cut in value.
And those very private investors, as represented by the Institute of International Finance, which negotiated the debt deal on their behalf, are also the main members of ISDA, as the FT’s as Alex Barker notes:
Arcane it may be, but tomorrow’s meeting will be an important test of whether European leaders’ prime goal — averting an uncontrolled Greek default that would trigger CDS (credit default swaps) — it likely to come to pass.
12.39 From Brussels, for your reading pleasure, comes the draft conclusions of the EU summit that begins tomorrow, a copy of which the FT’s Peter Spiegel has obtained (see 11.48).
12.24 If the LTRO was the hottest short-term news on the outlook for the eurozone, the French presidential race is surely one of the medium-term variables with the potential to have a major effect on the single currency’s fate. In Paris, the FT’s Hugh Carnegy has word of a move by Nicolas Sarkozy’s challenger to impose a little égalité.
As French Socialist presidential candidate Francois Hollande jumped on the Eurostar for his visit to London this morning, his team was unrepentant over his shock proposal to slap a marginal tax rate of 75 per cent on incomes above €1m.
Harlem Desir, the deputy leader of the Socialist party, told the FT as he waited for the train that the measure had been discussed for months but Hollande decided to act after figures emerged showing the remuneration of CAC40 execs had jumped 34 per cent last year. Such an increase was “stupifying, shocking, unreasonable”, said Desir.
“When you are telling people that times are hard and they have to accept sacrifices and on the other hand they see an elite with pay that increases by a third in one year – it’s not acceptable.”
He admitted the tax would only hit about 3,500 people and raise just €250-300m — but said a big object was to dissuade companies from making such large payouts. Why the threshold of €1m? Because that was about 100 times the net minimum wage — a “striking” symbol.
It will be interesting to hear Ed Miliband, the UK Labour party leader, on the subject when he meets Hollande later in the day.
12.15 Are the sharks circling the eurozone’s periphery again? Chris Adams, FT markets editor, tweets:
11.48 Herman Van Rompuy, head of the European Council, has officially invited Europe’s leaders to the summit that begins in Brussels tomorrow. To no one’s surprise, the economy tops the agenda – and Peter Spiegel, the FT’s Brussels bureau chief, has laid his hands on a copy of the draft conclusions.
Now that a lunch that had been pencilled in for eurozone leaders to discuss increasing the size of their €500bn rescue fund has been called off – largely due to German unwillingness to discuss the issue – the European Union’s two-day summit could be an uneventful affair.
Eurozone finance ministers will meet at 2pm just before the start of the summit to sign off on Greece’s €130bn bail-out – assuming, of course, Greece finalises its 38 “prior actions” by then. But according to a leaked draft of the summit’s conclusions obtained by the FT, the council’s agenda is rather thin.
For those inside the Brussels ring road, the most important decision may well be the re-election of Herman Van Rompuy, who runs the summits as president of the European Council, to a second two-and-a-half year term. “There’s a crowded feild of one,” said one senior European diplomat.
From the draft communique, it is clear there will be another round of remonstrations on the need for economic growth, mirroring similar declarations at the last summit in January. But the draft also makes clear there are a couple of non-economic items still to be decided.
There is expected to be some awkwardness over whether Serbia should be granted EU candidate status and whether Bulgaria and Romania should be allowed into the EU’s passport-free travel zone. Romania is suddenly complaining about the treatment of Romanian minorities in Serbia, and is holding up a decision on its candidacy. But there are suspicions Romanian objections are more tied to their anger at the Dutch, who are blocking their membership of the Schengen travel zone.
The smart money says Serbia will get its candidate status, but Bulgaria and Romania will (once again) be shut out of the Schengen zone because of Dutch intransigence.
Syria will also be discussed on the summit’s second day, and diplomats said there is a push to have strong language included, if only to keep the pressure on China and Russia to move at the United Nations. There is hope that the two can be split, particularly since Beijing is reliant on the region for oil supplies and its continued objections to stronger UN measures goes against the prevailing mood in the Arab world.
11.30 Amid all the excitement over the LTRO, new data from Munich and Athens this morning has highlighted the widening gap in fortunes between Europe’s strong and weak economies.
From Athens, Reuters reports that Greek retail sales by volume fell 12.7 per cent year-on-year in December after an 8.9 per cent drop in November, according to statistics service Elstat.
Greek households, hurt by austerity measures to plug deficits, have cut back on spending. Consumer confidence has also been hurt by a rise in the jobless rate which hit a record high of 20.9 per cent in November. Data from statistics service Elstat showed retail sales in revenue terms dropped 11 percent year-on-year in December, after a 6.4 per cent decline a month earlier.
Meanwhile, Munich-based research group Ifo published figures showing that German credit conditions had reached their easiest on record in February (emphasis ours).
Credit constraints for German trade and industry fell again in February. 21.1 per cent of the companies surveyed reported a restrictive credit policy on the part of banks. That is another 1.7 percentage points lower than in January. This brings credit constraints down to the lowest point since the survey began in 2003.
Companies in Germany currently enjoy exceptionally good access to bank loans. In the wake of the financial crisis, Germans with savings capital to invest have changed tactics: they are no longer looking abroad, but are now seeking domestic investment opportunities again. This is currently the key driver of German economic growth.
11.15: Mervyn King, the governor of the Bank of England, has been speaking to the UK parliament’s treasury committee this morning, suggesting that some of the hype about the LTRO is unjustified.
“The idea that the long term repo operations have eased the supply of finance to small businesses in the euro area is a myth.
“What it has done is to provide a source of funding to banks particularly in the southern member countries of the euro area which were experiencing a bank run, enabling them to fund the withdrawal of funds.”
10.58 Lest we forget the scale of funding in the ECB’s three-year loan operation, the €529bn borrowed today is the equivalent of the entire annual gross domestic product of Switzerland.
From the FT’s markets desk, Duncan Robinson has word of how equities traders are reacting to the LTRO news.
The latest LTRO operation by the ECB triggered large gains for French and Italian banks on Wednesday morning. Share prices for French and Italian banks spiked immediately following the announcement before paring gains in volatile trading.
Italian banks, which were one of the largest participants in the previous LTRO in December, rallied sharply. UniCredit, Italy’s largest bank by assets, jumped by up to 3.8 per cent before settling at a more modest gain of 2.8 per cent, at €3.95.
France banks rallied amid choppy trading. Crédit Agricole rose by as much as 5.2 per cent to €4.95, before paring its gains. Société Générale jumped 3 per cent to €24.90, while BNP Paribas also rose by up to 2.8 per cent €37.59.
Spain’s two largest banks by market capitalisation, BBVA and Santander, lagged behind the wider sector. BBVA gained 0.7 per cent to €6.80, while Santander rose 0.7 per cent to €6.31.
For a full take on the reactions, see our recently updated Global Market Overview, which contains these nuggets:
The ECB allocated €529.5bn in three-year loans to 800 financial institutions, a take-up broadly in line with analysts’ consensus forecasts.
Annalisa Piazza at Newedge Strategy said the operation had been a “success”. “At a first glance, it looks like today’s LTRO refi auction injected another [net] €250-300bn cash in the system,” she said in a note.
Alongside mostly better US economic data of late, such central bank largesse is considered an important factor in supporting broad market sentiment.
Indeed, since the first LTRO in December, equities have trundled inexorably higher as fat chunks of the ECB’s cash have found their way into the eurozone bond complex, reducing yields and calming nerves about sovereign debt contagion.
10.51 Quick out of the blocks, the FT’s Mary Watkins has written a news story on the LTRO announcement.
The European Central Bank on Wednesday injected €529.5bn in to the eurozone financial system as 800 European banks took advantage of the ECB’s cheap three-year loan programme.
Consensus median forecast had predicted banks would tap about €500bn from the second phase of the ECB’s three-year, longer-term refinancing operation (LTRO), which offers lenders an interest rate of just 1 per cent.
The ECB’s first three-year loan programme in December, which saw 523 banks borrow €489bn, is widely seen as a “game changer” that helped to avert a liquidity squeeze in the European banking system. The LTRO boosted investor sentiment, lifting markets and aiding an initial flurry of bond issues by banks at the start of the year.
And Sony Kapoor, managing director at think-tank Re-Define, has this to say (our emphasis):
ECB president Mario Draghi
What really matters is how much, if any, of this €529bn ends up as additional lending to the real economy. The fact net new liquidity at almost Euro 400 billion is almost twice that of the previous LTRO operation means that banks will now have more funds. Whether they use it to fund a carry trade or to lend more to the real economy will strongly shape what direction the crisis takes next.
While this will ease the crisis in the short term, an LTRO of this size is disturbing in what it reveals about the depth of banking problems in the EU. The easing of collateral rules before this round made it possible for a broader group of smaller banks to participate. The broader uptake of the LTRO by a larger group of banks that includes smaller institutions is likely to have a more positive impact on the real economy.
10.45 More market reactions coming through to the LTRO news. This from Divyang Shah, global strategist at IFR Markets:
Taking into account funds rolled from shorter dated operations the net liquidity add [of the LTRO] is some €313.7bn.
Luca Cazzulani at UniCredit tells Reuters:
This will increase the level of excess liquidity pretty sharply which is ultimately positive or very positive for risk trades. Italian and Spanish bonds are likely to benefit from this and equity markets as well.
10.32 So. We now have headline numbers for the European Central Bank’s second round of cheap three-year loans to European banks. Both the overall total – €529bn this time from €489bn in December — and the number of banks — 800 now from 523 last time — have risen. Let the post mortem begin.
Traders don’t seem to know which way to turn, reports Alice Ross, the FT’s currencies correspondent.
10.30 BREAKING NEWS Banks borrow €529bn from the ECB’s second LTRO programme. 800 banks took part. Both numbers are higher than last time.
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Michael Hunter on the FT’s markets desk reports:
Euro hits session low of €1.3436 after the data. Traders surprised that so many more banks take part: 800, up from 523 last time.
10.19 Er, still ready… The wait is starting to get to some in the markets:
10.13 Ready, set…
10.11 The debt markets are already acting on expectations of the LTRO, Bloomberg reports.
Italian two-year notes rose for a fourth day, driving yields to a 15-month low, on speculation the European Central Bank’s allocation of three-year loans will boost demand for debt from Europe’s higher-yielding nations.
Spain’s two-year notes advanced for a 10th consecutive day … German bunds fell for the first time in three days as the nation prepared to sell as much as €4bn of 10- year bonds.
10.03 The ECB announcement will come any minute now. In the meantime, Bloomberg is reporting the news of a first individual outlining its intentions for the LTRO.
Erste Group Bank AG plans to borrow €1.1bn in 3-year funds from the European Central Bank today, Chief Executive Officer Andreas Treichl told analysts in a conference call today. The Austrian lender took €3bn in the ECB’s last 3-year tender, Treichl said.
09.57 For those who want to see the ECB’s announcement live, this is the space to watch. In typical central bank fashion, there will be no fanfare — just an update to a spreadsheet.
09.34 Michael Hewson, senior market analyst at CMC Markets UK, compares banks tapping the LTRO programme to “an addict getting his latest fix”.
The key questions today will be how big this LTRO will be, and how will it affect the markets, because there is certainly no evidence that the extra money is finding its way into the European economy. If the LTRO has a low take-up, this could well be seen as a positive in that banks haven’t felt the need to use the facility, while a similar figure to the first one could well be broadly neutral.
In any case it remains hard to gauge, given that if banks are given what looks tantamount a pass to some free money, they’ll take it whether they need it or not.
Early evidence from the first LTRO suggests that a lot of banks are parking the money at the ECB, though some Spanish and Italian banks are playing the carry trade by buying up more of their government’s sovereign debt, hence the drop in yields, and the ECB has certainly been less active with its SMP [securities markets programme, through which the ECB intervenes in the troubled eurozone government bond markets] as this latest LTRO comes into view, though its balance sheet has ballooned in size.
Meanwhile, some serious money (believed to be in the region of £10-£15) is changing hands over on the FT’s markets desk, tweets reporter Philip Stafford.
And here, by way of a hostage to fortune, is the consensus.
09.19 The markets are holding their breath ahead of the ECB announcement. And Michael Hunter of the FT’s markets desk has resorted to borrowing double entendres from Noel Coward.
It’s like Norfolk on the markets — flat, quiet and only one story in town, namely the LTRO. The euro is holding around its three-month dollar peak, down just 0.1 per cent on the day at $1.3458. Traders are holding themselves in readiness for a positive number (see 09.06 for more the assorted meanings of “positive”), although dealers are saying that good news could be priced-in and selling could follow the release of the figures.
Some of Europe’s equities indices are a bit perkier, with the CAC 40 up 18 points in Paris at 3,471.66, a gain of 0.5 per cent. Frankfurt’s Xetra Dax 30 is 41 points higher at 6,926.95, a rise of 0.6 per cent. But London’s FTSE 100 is flat at 5,930.31. The FTSE Eurofirst 300 is 3 points higher at 1,078.94.
09.06 Will the total borrowing from the cheap ECB’s three-year loan facility be higher or lower than December’s €489bn? Will more or fewer banks tap the programme than the 523 who did so last time? Your sage calculations and wild guesses are very welcome in the comments section below.
What the numbers will mean is, naturally, open to interpretation.
If you tend to see the glass as half full, higher numbers might be an indication that banks are being sensible in taking advantage of conveniently cheap funding — funding that has, it seems, helped to ease the pressure on eurozone sovereign debt. A lower total might suggest that banks are starting to return to health and have less need of special credit.
If, by contrast, said glass always looks half empty, the implications are reversed. Increased borrowing by more banks would be a sign that the crisis is the financial system is deepening; a fall would suggest that banks are so nervous about appearing weak (do they have something to hide?) that they are declining to take cheap financing that they sorely need. Either way, the end of the world is probably nigh.
08.42 The big news today will be the second round of the European Central Bank’s Long-Term Refinancing Operation, or LTRO. In December, when the ECB offered these cheap three-year loans for the first time, the troubled continent’s troubled banks swallowed €489bn worth — and Mario Draghi, who had only been in the governor’s chair for about 20 minutes, was hailed for what was seen as an unusually decisive response to the crisis by a European technocrat.
All we actually expect from the ECB today is not much more than a headline number for the second round of loans, to be followed by much ferreting out of what individual banks have borrowed. Draghi has been keen to remove the stigma that big banking fish such as Josef Ackerman, the head of Deutsche Bank, have attached to borrowing from the LTRO, dismissing such comments as “statements of virility”.
Should you have missed it, we carried overnight an analysis of the programme and its implications by David Oakley, Mary Watkins and Miles Johnson. For all the praise, there are rumblings that the cheap loans might be allowing banks to avoid making tough reforms.
“Our view is that the Spanish banking system is troubled and it has used the LTRO money in part to avoid essential reforms,” says Alastair Ryan, banking analyst at UBS in London.
“Italy is complex because the banks’ challenges there are driven by the sovereign rather than the banks themselves. It is possible that the LTRO will buy Italy enough time. In Spain, the LTRO may only help to defer bank reforms.”
07.00 Asian markets have not reacted strongly to the news from Dublin. In fact, only mainland Chinese markets traded down, and even then only by a whisker. Elsewhere shares moved up, with Taiwan’s main index surging over 2.5 per cent.
The euro was a touch stronger against the US dollar in early afternoon Asian trading.
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