Second ECB TLTRO Also Flops, Bank Take-Up Far Less Than Expected

Tyler Durden's picture

Back in September, when the results of the first much-trumpeted TLTRO were announced, everyone said it was a clear disappointment, when European banks expressed just €82.6 billion in ECB credit demand, far below the €100-€300 billion range expected...

... and well below the €400 billion across the two 2014 TLTROs hinted by Mario Draghi. Today, we got the second TLTRO-3 result which too, was a flop, if not quite the disaster the first one was, when the ECB announced that just €129.84 billion was allotted in today's TLTRO result, spread among 306 counterparties, or 51 more than the bidder who signed up for the first TLTRO, resulting in an aggregate take up for both auctions of only €212 billion, which also happens to be €55 billion, or 21%, below the consensus expectations observed in a Goldman poll back in September 9, €40 billion below the Bloomberg median consensus estimate of €170 billion for the second TLTRO, and half the total cap of €400 billion.

More improtantly, unless there is a massive surge in the TLTRO-4 scheduled for 2015, the liquidity gap from the winding down LTRO 1&2 is only set to increase: it is already at a sizable -€59 billion.

Then again, with every ECB operation so far being a disappointment, considering only €21.5 billion in liquidity has been injected into the system via the ECB's ABCPP and Covered Bond purchase programs, and so far the TLTRO tracking at just about half of official expectations, this was promptly spun as great news for Europe as it means ECB public debt QE is inevitable. Recall what we said three months ago:

In fact, the less TLTRO taken up, the higher the push back to the ECB to do more private and public QE on its own!

Now if only Mario Draghi did not have an open revolt on his own board and if he had the backing of the EU (and Germany it goes without saying), then all would be well. In fact, judging by the kneejerk reaction, it would appear even the EUR isn't so sure public QE is imminent, after it dropped to session lows of 1.2414 on the result, only to resume its drift higher.

Here are some kneejerk sellside responses via Bloomberg:

  • The European Central Bank’s second round of long-term loans came in at the low end of analysts’ estimates, bolstering the case for the institution to start large-scale quantitative easing: BBG
  • Second ECB TLTRO takeup of EU130b confirms that TLTROS, ABS and covered bond program aren’t enough to expand the central bank’s balance sheet by EU1t, Roberto Cobo Garcia, fx strategist at BBVA says in e-mailed comments. Sovereign QE will be needed to reach ECB’s objetive.
  • 2nd TLTRO takeup isn’t going to halt the push toward QE in 1Q 2015, fx strategist Peter Frank adds

And the spin goes on. Finally, here is Goldman:

LTRO-3, part 2: €129 bn allocated vs. our expectation of €120-180 bn


€129 bn take-up (total €212 bn)


Today, the ECB announced €129 bn take-up for the second tranche of the LTRO-3 allocation; the aggregate take-up for both auctions was €212 bn.


Two points:


(1) Aggregate take-up of €212 bn compares to our estimate range of €200-260 bn; it is €12 bn (6%) above the bottom end of range (€48 bn, 19% below top end).


(2) Compared to consensus, the aggregate take-up is €55 bn (21%) below consensus expectations (as per our survey published on September 9, in LTRO-3: A liquidity operation, not a silver bullet for lending).


Net injection a function of LTRO-1&2 put-back


Today’s LTRO-3 funds allocation represents a gross injection of liquidity. The ‘net’ injection will be a function of LTRO-1&2 put-backs, which will be announced on Friday.


All LTRO-1&2 funds need to be returned to the ECB by the end of February 26, 2015. LTRO-3 auctions, in total (€212 bn), are less than the residual amounts of LTRO-1&2 (€271 bn) funds outstanding.


LTRO-3: Allocations vs. current usage


LTRO-3 was capped at €400 bn, of which €212 bn was drawn; allocation eligibility for individual banks was proportionate to the size of their eligible loan books. Allocations do not map well with current LTRO-1&2 usage (€271 bn), which is heavily skewed at the country level (Italy and Spain) and within individual countries (mid-sized banks). We believe that select banks will look to fill the liquidity shortfall with a combination of (1) MRO, (2) market REPO and (3) ALM book cuts.


LTRO-4: The bigger chunk of TLTRO


We see LTRO-4 as a more potent liquidity tool and estimate take-up, spread over 2015 and 2016, in the €520-610 bn range.

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Ghordius's picture

it's the other way round: every time a TLTRO "flops", there is less reason to believe the banks that any kind of intervention is needed

but trust the "the US Stock Market has to be further pushed up!" crowd to ask nevertheless for any kind of QE, the sweet, sweet drug on which they are hooked

Haus-Targaryen's picture

I look at QE like heroin.  

When someone gets addicted to it -- detox is a bitch, and somepeople wish they would just go ahead and die.  The alternative is death.  

The anaology fits.   

i_call_you_my_base's picture

"there is less reason to believe the banks that any kind of intervention is needed"

Well, OK, but according to central bank thinking, there is actually more.

Ghordius's picture

Central Bank... thinking? or Central Bank... talking? As usual, I will point out that many articles and comments talk about CBs as if they were equal, on the same side and all in all "the same"

the central bank of this article... well, it's talking in one direction and it's balance sheet is going in the other direction. but don't tell the US Stock Market, or Wall Street will throw a temper tantrum. Jim Reid is already complaining that if "markets don't behave", the Christmas Rally is in danger

meanwhile, many central banks have a huge dearth of... dollars. And are facing strong possible devaluations, with an humungus speculative market betting on further falls

i_call_you_my_base's picture

Deflation is clearly happening in Europe, the numbers are saying it. The economies of the periphery are looking weaker as the days go on. And the debt load is high. I guess the ECB could allow all of this to continue, but the general thrust of "central bank thinking" is that inflation is necessary and credit is desired to combat all of these problems. So in an environment of deflation, debt, recession, and no credit creation, the solution is QE or some form of it. This here push was about credit, no? And that push for credit isn't getting much traction. To me, they will seek other avenues to acheive the goals and "solutions" I mention. What's the alternative for them? Let deflation hit, debt service rise, and the economies drive downward? "Letting things happen naturally" is not exactly the credo of central bankers.

Ghordius's picture

first, I'd be careful with that word, "deflation". Sometimes, the definition changes. For a Wall Street champ, "deflation" means stocks going down, for example

second... well, credit is available to banks, at excellent terms. but the horses ain't drinking. that's the "beauty" of LTROs and TLTROs, compared to QEs

third, is sovereign debt a problem if budgets are balanced?

and fourth... imho, it's a "deflation" problem when prices fall

i_call_you_my_base's picture

Yes, I was using "deflation" as prices falling, which they are. After I wrote I considered what you're saying.

And I agree, that is the problem, you can't force lending. Same issue in the US.

My point is simply that central bankers use lack of lending as a justification for intervention. This is lack of lending. Hence...

We'll see.

Ghordius's picture

We'll see is often the wisest words, when it comes to the future. But an ECB central banker would probably point out that they are trying to force lending, with the "punitive" NIRP forcing banks to pay for "excess" cash on the ECB's accounts

meanwhile, european CPIs include food and energy, something that is often overlooked. Russia is counter-sanctioning food and Saudi Arabia is letting energy prices fall further. But prices and wages are often stickier then that, at least in the short term

yes, we'll see. Dr. Krugman will for sure have a few harsh words about all this

Non Passaran's picture


It's a sign that the banks think the CB scumbags and EC lowlifes will take care of everything. 

Eyeroller's picture

CNBC headline:  "ECB lending meets estimates -  euro steady"

SmallerGovNow2's picture

These are still HUGE numbers.  Proving anything and everything can be manipulated...

buzzsaw99's picture

if the euro banks had copious collateral they wouldn't need a loan. duh.

Ghordius's picture

blame our "underfinancialized" eurozone economy that issues relatively few stocks and bonds

remember, we are talking about (officially) half of the real economy in fully private hands, with no banking involvement except those business loans which US (and in part UK) banks hate because they can't be peddled on further markets

buzzsaw99's picture

The banks books stink. Taking a "haircutted" loan on crap collateral doesn't help the problem of insolvency. If the banks in particular are also"underfinancialized" then they should just issue more stock. The problem with that is all the CEOs stock options would be worth less and we can't have that.

Ghordius's picture

you probably misunderstood me. I'm talking about the real economy being less in stocks and bonds, and more in full private hands, with bank business loans as a side course

which is the main reason that whenever a US bank analyst looks at eurozone banks, he does usually not understand well what he is seeing. he is seeing the past of banking, from his perspective. he is seeing at an economy the way it used to be, in the US, before Wall Street succeded in "financializing" more of... everything

GetZeeGold's picture




if the euro banks had copious collateral they wouldn't need a loan know we're good for it.

AdvancingTime's picture

The Euro-zone is in a far bigger mess than recent headlines and figures suggest. Most of the growth in the Euro-zone over recent years has been in Germany and that bright spot is now under pressure. Italy has been in recession for two years; France’s economy has been stagnant for months. Now that Germany is slowing many economist think the chances of a Japan-style deflationary spiral have risen sharply.

Blame is being cast upon German policymakers that remain pigheadedly opposed to the stimulus the euro area wants, but what they need is serious reforms. Debt does matter! Bottom-line and what it all boils down to is Germany can’t keep buying Greek bonds with German taxpayer money until the end of time.

gatorengineer's picture

Europes problems were greatly aggrevated by accepting the US demands for sanctions on russia.... Dont underestimate the amount of French wine or German Cars that Russia consumes.

gatorengineer's picture

Time to go full Krugman, 5000 Euros direct cash payment to every member of the EU....  Make it Rain

GetZeeGold's picture



Make it Rain


Why the hell not?

Bill of Rights's picture

Taxed accordingly of course...

GoldSilverBitcoinBug's picture

3000 € Universal Basic Income to all citizen above 18 in Europe. Bring back (hyper) inflation !

GetZeeGold's picture



Kinda like throwing spaghetti at the wall.....something is bound to stick.

Silversinner's picture

Draghi the evil debt pusher from GS will keep on stuffing the goose.

The maket rejecting new debt won't stop this psycho.

Just keep on putting more debt onto the slaves,

we will either pay with our wealth or BLOOD.

His kind is not even elected by the people of Europe.

I do not have the words to describe how much I hate

these N.W.O fuck ups.

GoldSilverBitcoinBug's picture

TLTRO don't work, even if you give free money businesses won't take it because they don't have good market perspective, the businesses don't want to take loans !

And QE will only turn us into Japanese with soaring importation cost (mostly energy).