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Full Scenario Analysis Of LTRO 2.0 Size Implications
Credit Suisse believes LTRO 2.0 will see a gross uptake of EUR500-650bn, notably above current consensus around EUR325bn. The math is straightforward and does not exaggerate too much for the speculative demand which they (like UBS) do not expect to be as significant as many happy-talkers. Between existing LTROs rolling off, rotation from the MRO, Emergency Liquidity Assistance financing, deposit flight, and reserve requirement reduction they arrive at around EUR300bn and believe a further EUR200-350bn in covering private debt refinancings (and perhaps some speculative activity though as we already noted the economics are nothing like as attractive anymore), their estimate is around twice the initial LTRO net increase which could take the ECB balance sheet to over 35% of GDP, dramatically above the US and UK, and the following scenario analysis sets out the short- and long-term implications of varying gross uptakes for LTRO 2.0.
LTRO 2.0 Gross Uptake and Implications
Based on data from the ECB we can estimate how much maturing debt is likely to be rolled into the February LTRO:
- There is a 28-day operation maturing on 15 February that amounts to €38.7bn;
- In an old 91-day operation held on 26 January, €25bn less was rolled than expected – we expect this to be put to work at the next 3y LTRO;
- MRO usage is expected to fall as it did following the first 1Y LTRO in 2009 (see Exhibit 8) – the minimum MRO usage was €50bn in November 2009. Current MRO usage is €130bn – so there is potentially €80bn that can be migrated into the 3y LTRO;
- Emergency Liquidity Assistance (ELA) financing – our economists estimate usage by Irish, Belgian and Greek banks via ELAs to be around €110bn; a large proportion of this can be moved to the LTRO;
- Deposit flight from peripheral European banks amounted to €120bn in 2011 – we expect a large component of this drop in deposits to be financed via the ECB;
- The reduction in the reserve requirement is expected to have released €103bn back to banks, reducing financing need.
So we expect about €150bn in old operations rolling into the new 3y LTRO. Then, any excess borrowing will depend on the range of additional credit claims that are made available and the need to replace lost deposits.
According to the ECB Financial Stability Review, Euro Area banks face about €550bn in maturing debt for 2012. If we assume that the €193bn net increase in liquidity in the December LTRO was used primarily for financing 2012 redemptions, it is possible that banks borrow a further €350bn in new cash at the next operation.
Taking the above factors together, we calculate that gross borrowing at the next LTRO could amount to €650bn (150bn old roll offs + 350bn refinancing need + x(120bn) lost deposits + y(110bn) ELA – 100bn reserve reduction). This estimate does not account for any speculative demand; given current yield levels and the likely evolution of the situation in Greece, we expect such demand to exist, but not to be a driving factor. This also does not account for collateral switching between the December and February LTROs – whereby banks took up extra funding in December in the hope that they could finance less liquid credit claims in February. Such collateral switching could serve to decrease our estimate.
The gross uptake on 29 February needs to be adjusted by about €150bn in rolling operations to calculate the net increase in liquidity to the Eurosystem. Our expectation of between €500bn and €650bn would therefore equate to €350bn-€500bn on a net basis, around twice the December €193bn net increase. It is also possible the ECB keeps the door open to further 3y LTROs if the situation warrants it and also as a mechanism to smooth out the redemption profile for LTRO operations.
ECB balance sheet to rise to 35% of GDP
As we have discussed on numerous occasions the ECB balance sheet as a percentage of GDP has already significantly surpassed the Fed and the BoE. Exhibit 6 shows the evolution of the ECB balance sheet (% GDP) versus the Fed and the BoE.
A €350bn net increase in liquidity is expected to increase total assets by the same amount, ceteris paribus. Given the wide range of expectations by the market, we include two estimates for the extent of increase in the ECB’s balance sheet: a net uptake of €350bn or €850bn. This, by our calculation, would coincide with gross uptake of €500bn or €1 trillion, respectively.
And as we have discussed many times recently, this will likely force the Fed's hand as the implicit USD strength would be too much to bear (given their explicit 2% per year devaluation mandate) - though the coincident timing of the Greek bond deadlines and LTRO 2.0 provides yet another wrinkle.
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At least those euro folks will be totally indentured before we will.
for about a week
Print, BITCHEZ!
http://homepage.mac.com/dtrull/pix/idiotcash.jpg
CRISIS FATIGUE, BITCHEZZZ...
Ben S. Bernanke's official policy recommendation to the European Union regarding their current debt crisis:
*This message sponsored by Carl's Jr. Ben S. Bernanke is sponsored by Brawndo, the thirst mutilator.
It's getting worse by the day!
-John
http://www.youtube.com/watch?v=z3VDJDPMOmk
For all this Bernank, Geithner, and all the politicians everywhere deserve no less than death by flogging.
National Bank of Greece (NBG) says baiout.... UP 9%!!! Follow the money.
I have been very positive on LTROs, as some of you have noticed. Now I got worried with this shitty line:
"Emergency Liquidity Assistance (ELA) financing – our economists estimate usage by Irish, Belgian and Greek banks via ELAs to be around €110bn; a large proportion of this can be moved to the LTRO;"
I don't like it one bit. Will ECB take over National Central Bank emergency lines? I hope/wish/pray that the BBB- to AAA treshold is in place, so for example the Greek collateral is of investment grade quality.
Ponzi. Pure and simple. Or, worse yet, shell game...
I'll promise you 2 trillion Euros in debt that can never be paid.
Will that make things last an extra 2 weeks?
TBTB = Too Broke To Bank
open the euro throttle, open the spiggot, FED/BEN here we come!
Time for the PigMen to flush out overzealous longs so that TPTB can re-energize the frantic bid into Treasuries again.
That sounded bearish Robo. Are you having a stroke?
or Bullish Treasuries. +1
Yea once in a while Robo goes from 'Momo dork' to 'Bond Geek'.
So predict a real trade for a change. What nothing? Well, keep those rear-view updates coming then.
That is the smartest thing I have heard you say yet.
How bout if we're just looking for something slutty then?
This could provide a ready-made opportunity to BTD in PMs on post LTRO dollar strength if you think it will force BB's hand.
Bernake's printers go to 11
I really don't start paying attention until they hit one trillion euros
How can any honest accountant look at this and not see that a jubilee is the only way out.
Will never happen. TPTB would rather squeeze the very last dime from a cancer stricken 90 year-old grandmother living in a refrigerator box behind a Home Depot before they would willingly forgive one red cent.
Socialism for the rich - capitalism for the poor.
Theyll never 'forgive' a damn dime of the peasants debt.
That's why we're peasants. Paying taxes is for us slaves. It's not so bad once you accept that you are someone's property.
What i dont get is why the 1 year greece bond ist at 528% und the 10 year only at 34% ??
Is my data source correct and i just dont understand?
http://pigbonds.info/
Who the hell can actually explain any of this insanity?
Once the Ezero and dead head fed get done trying to fill a universal monstrous debt black hole, with so much more paper money, perhaps the earth can get down to some sound money. Maybe the pain will be so great america gets back to fiscal monetary principles of not spending more than we the people take in. Debt being wealth. Who sold that pot of piss to the congregation, as pure drinkable water. Think the well got poisoned; tares sown in among the wheat choked out all common sense.
I'd imagine WWIII not far off now. Get us foaming at the mouth for each others blood down to the final conflict. You'd think the devil was behind the complete destruction of civilization as we know it. Of course he's an illusion with power in the hands of imbeciles to go nuclear.
Only about a handful of decent places remaining to get a reality grip. The PTB have gone into happy-talk overdrive.
http://theeconomiccollapseblog.com/archives/the-financial-crisis-of-2008...
The more shrill the 'happy talk' the closer it is to implosion time again.
So far no good:
Consumer credit/DEBT surges again in Decemberhttp://www.marketwatch.com/story/consumer-credit-surges-again-in-decembe...
Sheeple drinking from the piss pot of debt is wealth. Spending our way to prosperity. Totally flocked in the bankster gangsters monetary vampire squiding of the world.
People falling off unemployment insurance, more likely; or maxing out credit before going bankrupt.
Here we are laughing at the sheeple. Maybe they are the ones who 'get it'. Borrow as much as you can, knowing you'll never pay any of it back. Saving is so last millenium.
The 'unthinkable' will soon happen to them one day soon again, and of course theyll all be saying 'No one could have seen THIS coming' as markets collapse and chaos ensues....but for today, all is well.
almost makes sense, except that some people will argue low uptake is a sign of bank strength since everything has to go up no matter what
Late day no volume spike baby! Barbacue those shorts. I think they heard Robo go bearish and decided to stick one up his ass too.
Well hey after all its all good, at least for today. As we read earlier its just like 'The Producers' if even one small counterparty slips up and defaults, all becomes due and theres a massive domino default....but dont worry its all good theres NO chance of that for today! After all, Bernanke says 'But mine goes to 11'.
Whadya mean I don't get a free toaster? I JUST GAVE THEM 200 BILLION!!!
I see what you did there... But its not devaluation if every single thing (unlikely) is inflated away.
A magnanimous ECB operation for February under Draghi, as Credit Suisse recommends probably puts paid to all the debt repayment obligations and the multitude of MRO s and ELAFs as wells as the slight discomfort from deposit flight and the ledftover LTRO ops probably taken care of in the meantime, while the sudden inflows could also completely dumb down any spikes in Spain and Italy that could disturb the fabric even as Greece is walked to the gallows by the end of this month, defaulting and then we hope the Budget Commisioner or other ECJ entity finds a way to keep them within the Eurozone. Simpler and yes, the Reserve requirement reduction release of EUR 103 bln ( thanks again Tyler/zerohedge ) can match the deposit flight that has happened yet.
http://wp.me/pC4M1-308
http://advantages.us
the euro is @ 1.32 1/2
is something not priced in, perhaps?
consensus = full0'shit
there! now, what are we lookin at?
quick! we need a "consensus" here! L0L!!!
"hi! i'm from UBS and our business model indicates that you are so fuking not able to think clearly that you will accept our "help" in designing new ways to increase the burden under which you are already struggling unto death...
"...because we are "healthy" we would like to introduce you our "product line" b/c we are "safe" and so, you an trust us to clean yer styooopid ass completely out, here!
what's not to like?"
you say, that this doesn't account for swaps maturing at the FED?
but, don't you understand: those loans are not in euros!
sir! this a bank!