Banks Will Still Be Under-Capitalized, UBS Does The LTRO Math

Tyler Durden's picture

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I am Jobe's picture

Forget about ECB, here it is
US asks banks to keep more cash at hand'
Posted by Lew Rockwell on December 20, 2011 10:12 PM

Are you doing the same? That is, keeping some cash outside of banks and in your own hands?

Michael's picture

It's campaign season.

I have a premonition/observation I'd like to share with you.

This 2012 GOP primary election season is a referendum on who is more influential and more powerful.

The Mainstream Media Vs The Internet on who gets to chose the Presidential winner this time around.

The TV talking heads are blowing a gasket cause 80% of the Internet community have chosen Dr Ron Paul to be their president already.


Global Hunter's picture

Yes this seems like a viable system and sound model on which to run a society (sarc)

Scale: UBS forecasts that banks will borrow EUR 320bn through the LTRO facility. If that entire amount generated net profits for banks at a rate of 2.56% per our example, then the banking sector would reap annual profits of: EUR 320bn × 2.56% = EUR 8.2bn

A Man without Qualities's picture

And the other factor is that the action of the LTRO basically creates secured lending, meaning there are fewer unencumbered assets left on the banks' books.  So, then you want to tap the equity markets to raise more capital - does this sound like a good deal for shareholders?  Would you want to put your money into a shell were the residual assets are of an increasingly lower quality?

The answer is, they haven't thought that far, they just want to get to the end of the year....  maybe they will force pension funds to invest...

Sandmann's picture

Interesting that the Dutch Central Bank has scrapped its Dividend thus raising the Netherlands Borrowing Requirement......the Central Bank is exposed through the ECB and is protecting its Balance Sheet at the expense of Dutch taxpayers. I wonder if that is a microcosm of what the Bundesbank sees ahead ?

El Gordo's picture

Let's take it a step further.  Interest on the sovereign debt is theoritically paid from tax revenues (or borrowings).  Quickly translated, that means the tax payer is paying the "profit" that the bank is reaping.  Why not just cut out the middle man and recapitalize the banks directly?  Oh wait, someone might figure that out, and besides it doesn't fit the Rube Goldfarb model, to say nothing about no bureaucracy needed.  Can you say "suckers" again? 

Yen Cross's picture

 This post is an " Under Statement". Tyler's called this Fiasco.  This is akin to a " Merry - Go- Round" , with " Rubberized Parts".


     What is going to happen when the CDS spreads widen again?  Who is going to underwrite the, secondary market)?

falak pema's picture

You guys are good at financial chess; you are looking ahead. But the market, the TBTF caboodle, and their political shills in high up places, are all slapping high fives, they've won a few days/weeks/months of respite; some of them dream and hope they've won their re-election.

The way the world is, we live from day to day, as they play the sweet, syrupy music on the teetering financial Titanic.

"May I have this dance with you young lady?"

"You may, if you promise to buy me a diamond ring from Tiffanys."

"No problem. I've just made a killing on the Santa rise of hopium market."

Happy new year, LTRO Charleston boogie-woogie, before we start singing the blues, ..."Sitting on the dock of the bay...". Like Otis.