Chillin' out till it needs to be funded
As the EBA envisaged, however the banks had since deleveraged by risk optimisation ( paper changes of RWA categories to bring down capital requirements) and engaged in financial sell offs to bring down the requirement by 20%, leaving the ga p at well, to be honest Euro $200 bln, but (ahem!) who’s to blame for using old arithmetic on a new month’s budget! The banks however have ended up witha new Eur 1 bln per bank (Eur 983 mln) dole out in 3 year loans from the ECB. The lending rate is 1%. Pity, we do not have that kind of money and thankfully, no one will be printing such amounts in Asia. the ECB has opened a facility fo r$489 bln in three year loans at a rate of 1%.
However the benefits are unlikely to go Asia’s way as long term decisions regarding Asia assets will affect the continuing 50% hike in rates in the region and banks have wthdrawn available credit too probably as they rein in credit to profitable categories andr revise borrowing rates to a higher clip. As the European Commercial Bank’s 1% loan fills up the hiatus giving the race to become competitive for the banks a a slightly positive hue
a..in trying to get a profitable business model;
b..while settling up on their new Capital structures;
c..without running off other profitable assets and
most importantly, avoiding stand offs with their National governments which were already visible in the banks’ stance.
Still to come, a public patch up by banks and governments, another dozen auctions of 30 d and 90 d bills for Spain and Italy at below 1% than the November drama of 5.5% yields for Spanish bills, and a shrinking of the Euro zone GDP to $15 tln from the current $16 tln even as ECB has already cut rates twice, even as this loan facility ensures credit flows turn positive in the region.
The fracturing of the Euro is as unlikely as it ever was desppite the GDP cuts in Italy, Greece, Ireland, Spain & Portugal and some of the eastern cousins that are running a bankrupt government as monetisation as a facility strategy averred by Euro watchers is well and truly dead , ECB and IMF unlikely to increase bond buying to the levels hoped for by those short on the . This bank capital however solves the problem of collateral , most of it already being used and reused and the ECB running a$ 3.3 tln balance sheet ahead of the Fed by $500 bln already before these loans were spun tonight.
Other important rreads on the European Banks’ recapitalisation story..
Another wintry realisation to the International Financial community this month would be that Germany has safeguarded its own growth without hurting the cause of others’ in the EZ but there is no easy money around so contraction and downgrades will happen throughout the zone
And where the money will go?
The ECB cash out for example divvying up the $606 bln of date with $260 bln ( EUR 200 bln , courtesy the Mike Mckee quick math wonder) left for banks to attend to debt repayments for the banks like the $100 mln February hole for Italy, only in this case the banks need to repay principal and interest in time (sic!)
The banks are returning the remaining $350 bln odd (depending on the exchange rate to the ECB facilities from which they borrowed just to get the collateral congestion cleaned up a bit.