Euro Slides As First LTRO-2 Repayment Less Than Half Expected

Tyler Durden's picture

A month ago, on January 25 when the window to commence LTRO repayments was opened, European banks, with much pomp and circumstance, announced that 278 banks repaid a greater than expected €137.16 billion of the €1+ trillion in LTRO funding disbursed in early 2012. This was taken as a sign of European bank stress dissipation and financial stability, and furthermore served to push the EUR much higher on expectations that the ECB balance sheet would rapidly contract even as every other central bank balance sheet was expanding. It also ignored the fact that ongoing broad economic weakness in Europe required and still requires a weaker currency, not a stronger one (however too weak, and you get "redenomination risk", etc, etc). As it turns out, like everything out of Europe, the "strength" indicated by the first LTRO2 repayment was merely a sham, and moments ago when the ECB announced the results of the second 3 year LTRO repayment option, the news was a big dud: instead of the €122.5 billion expected to be paid back, European banks repaid just under half of this amount or €61.1 billion, spread among 356 banks - an average of just €0.17 billion per bank.

The result was an immediate slide in the EUR currency as questions once again arise: were European banks just faking it; is European liquidity suddenly (and still) insufficient and do banks still need much more ECB support than expected; is the ECB balance sheet contraction now officially over especially with rumblings yesterday by assorted ECB officials that a negative interest rate is conceivable, and with JPM now expecting another rate cut imminently by Draghi? Most importantly: is this time not different after all?

And for reference, here is Goldman's take:

€63 put-back falls short of expectations


Today (February 22) at 11:00 GMT, the ECB announced the LTRO funds to be returned next week through the (fifth) weekly put-back option, and the first for the LTRO-2.


Banks repaid €63 bn of LTRO funds (LTRO-2: €61 bn and LTRO-1 €2 bn); this falls well short of expectations (e.g. FT reported a consensus of €130 bn) and the initial repayment of LTRO-1.


The cumulative repayment now stands at €212 bn (21% of initial take-up), leaving the LTRO cash in the system at €807 bn.


Weekly put-back tempo of <€5 bn base case


Banks used the initial repayment option to send a ‘health signal’ and repaid €137 bn of LTRO-1. The initial repayment of LTRO-2 was “only” €61 bn.


Our expectation is for the repayment tempo to stabilize in future and we see a ‘repayment corridor’ of €0-5 bn per week as a base case expectation. This allow banks to gradually reduce the use of term ECB funds as we move through 2013.


Signaling and maturity are crucial


Without time pressure, a put-back decision is driven by economics. We believe that for peripheral banks LTRO money continues to offer an attractive reinvestment proposition. Moreover, we believe the banks will use 4Q2012 results to outline a longer term path of repayments, in order to signal their ‘resilience’.


Finally, with two years remaining, LTRO remains an attractive facility for the majority of banks, which cannot achieve comparable terms in the funding market. But in a year’s time, this is unlikely to be the case. We believe a longer-term exit path will be the most likely outcome.

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GetZeeGold's picture



Dammit.....and I was really hoping this time.


Oh well......maybe tomorrow.

Edward Fiatski's picture

"Where's the MONEY, shithead!!"

A trillion short and ronery, so ronery. Sniff, sniff. :'( German exports were -2%, while domestic consumption actually improved, which means the Euro is too damn high!

EUR down 70 pips - bag 'em & tag 'em.

Manthong's picture

No big deal.

It’s nothing that a LTRO 3 for say, $3 Trillion Euro or so won’t fix..

It's not like there is any stigma attached to it or anything.

swissaustrian's picture

EUropean credit was right once again

fonzannoon's picture

when the history books write about the great 1% correction of feb 19th and 20th of 2013 it will not say much except it was immediately bought. I hope everyone on here survived the carnage. 

Desert Rat's picture

LOL, I hope everyone BTFD!

Inthemix96's picture

What a suprise?

Wankers, easy come, easy go eh?

PUD's picture






Euro Monster's picture

French President gets UNESCO peace prize... just sayin

Börjesson's picture

The euro is too strong, they need it to go down a bit - and somehow, magically, the statistics released are such that the euro goes down. And once again, Draghi manages to keep the exchange rate where he wants it without printing, and makes everyone reporting this as a bad thing (including ZH) into his unwitting accomplice. Quite impressive.

toys for tits's picture

I wonder how much was "repaid" with money from the Fed?

HoaX's picture

You better wonder how much US banks actually repaid the FED.

ECB balance sheet is tightening since July 2012, FED, BoE, etc. not so much.

And now, when they fear the Euro is too strong, a lower LTRO2 repayment magically brings it down a notch.

Say what you want about Draghi, but for now I´ll take him above your Chairsatan Bernank.

orangegeek's picture

Euro has been in a free fall since the start of February.


One of the reasons why the US Dollar has been climbing.

TraderTimm's picture

Climbing like the stern of the Titanic, before it slips below the insolvency sea.