Could Deepen EU banks unlimited loans dependence of the central bank

Could Deepen EU banks unlimited loans dependence of the central bank

European banks, shunned by investors and others to borrow more in the next month by the European Central Bank, as in a record time offer in December, fleeing the markets frozen funds.

The ECB lent banks last month in an unprecedented € 489.000.000.000 (630 billion U.S. dollars) for three years. Analysts say they expect demand to be high in the second auction on 29 February because of the stigma associated with the structure and the power loss and the list of items that can be used as collateral in exchange for the loans to be extended. ECB president, Mario Draghi, said last week that the expected loan demand next month are "still very high," but "probably less than in December."

"February the second three-year funding seems to be huge," analysts at Credit Suisse Group AG, led by William Porter wrote in a report to clients. "The last LTROs has removed a stigma, so that the management does not provide the value of the most distracted."

The ECB has flooded the banking system with cheap money, in the attempt to create a credit crunch, after the market of bank debt and unsecured loans money dries on the U.S. market to prevent seizures. Politicians, including President Nicolas Sarkozy of France, urging banks to provide credit to wear at a rate of 1 percent, use a high yield of the Southern European bonds to buy the financial cost in the region.

The ECB offers banks unlimited funds, as banks seek more than $ 765 billion to refinance the debt due this year, as investors are reluctant to keep buying the debt of all but the safest banks.

"Flooding the market"

"Whoever is not willing money to the banks, the ECB is simply flooding the market with liquidity to lend," said Christopher Wheeler, an analyst at Mediobanca SpA in London. "But it is only a temporary solution. The ECB is only time for these loans in the hope that it gets better."



Lenders in Italy, Spain and France have used loans to buy more of their domestic government bonds in order to take advantage of the difference between the interest on the money from the ECB and the higher yields on government bonds, analysts said.

The issue, which surveyed more than 500 banks in December, belittled the estimate of 293.000.000.000 € of economists by Bloomberg News. Half of the loans that were taken by the Spanish and Italian banks, Morgan Stanley analyst Huw van Steenis said in a January 18 report to clients.

Italian banks were the main users, with UniCredit SpA, the largest lender in the country, among 12500000000 €, Intesa Sanpaolo SpA, the second largest, accepting € 12000000000, and Banca Monte dei Paschi di Siena SPA 10 billion Morgan estimated Stanley analysts, citing interviews with 50 banks and politics. Speaker of the three banks declined to comment.

Spanish banks

Banco Popular Espanol SA, took Spain over EUR 6 billion, while Banco Bilbao Vizcaya Argentaria SA for € 5 billion to Morgan Stanley. Bankinter SA for € 5000000000 Chief Executive Officer Maria Dolores Dancause said in a press conference in Madrid on 18 January. A popular spokesperson was not immediately available for comment. BBVA declined to comment.

French bank BNP Paribas SA, Societe Generale SA, Credit Agricole SA and SA BPCE all borrowed from the ECB, although he declined to say much as said Morgan Stanley. Bank spokesman declined to comment. Royal Bank of Scotland Group Plc, the largest lender in the British government was 5000000000 £ (€ 7.8 billion), according to analysts. A spokesman for RBS declined to comment.

With all the banks and borrow more than 150.000.000.000 € in the next month to 400.000.000.000 € said Van Steenis. "It seems that even large-cap banks were open to use it, since the size and the absence of a stigma," he wrote.

Senior Debt

Ronny Rehn, an analyst at Keefe, Bruyette & Woods Inc. in London, Gary Greenwood at Shore Capital in Liverpool, and Neil Smith at WestLB AG in Dusseldorf, said it expected demand in December the same.

Matthew Czepliewicz, an analyst at Collins Stewart Plc in London Hawk Point, said the demand for 250 billion market fall for the senior unsecured debt is more open to the lender.

Since the initial offer of three years from the ECB money in the past month, including banks and Nordea Bank AB, Rabobank Netherlands has sold more than 19.5 billion of senior unsecured debt of the reference. This compares with sales of € 14500000000 bonds issued by banks from July to December last year.

Collateral Rules

Other analysts said the ECB's decision rules about what banks are used as collateral in exchange for loans to facilitate the push demand higher. Dragons announced the ECB's requirements in securing a press conference on 8 December to relax. Details on the new rules have been posted yet.

Said "The ECB is still deciding what are acceptable collateral," Marchel Alexandrovich, economist at Jefferies International Ltd. in London. "If the criteria are rather loose, then the demand for cheap money undoubtedly swell and you can clearly see the amount 1000000000000 €" operation in the next month.

Credit Suisse Porter said he expects the banks a bit more than in December, give some 500.000.000.000 € because the creditors do not want to be at a competitive disadvantage if their colleagues can borrow cheaply from the ECB.

"This is a series of risks that banks face and refinance markets react positively to resolve after a short delay," Porter said in a telephone interview. "But the important question is, how" long you can run a banking system like this? "

With the help of Charles Penty in Madrid, Sonia Sirletti in Milan and Fabio Benedetti-Valentini in Paris. Editor: Edward Evans, Jon Menon.

; Gavin Finch in London gfinch@bloomberg.net Liam Vaughan lvaughan6@bloomberg.net in London contact the reporter on this story

Edward Evans eevans3@bloomberg.net: the editor responsible for this story contact