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Goldman Conducts Poll On Latest European Deus Ex, Finds Respondents Expect €680Bn LTRO Take Up
We have discussed forecasts for the second (and certainly not last ) February 29 3 Year LTRO in the past, with expectations for its size ranging from €1 trillion all the way up to a mindboggling €10 trillion. Today, Goldman has conducted a poll focusing on investors and banks, to gauge the sentiment for what has over the past 2 months been taken as the latest Deus Ex, which is really nothing than yet another bout of quantitative easing, only one in which the central bank pretend to be sterilizing 3 year loans by accepting any and virtually all collateral that banks can scrape off the bottom of their balance sheets (as a reminder, back in the financial crisis, Zero Hedge discovered that the Fed was accepting stocks of bankrupt companies as collateral - certainly the ECB is doing the same now). And once the banks get the cash instead of lending it out, or using it for carry trades, they simply use it to plug equity undercapitalization due to massive asset shortfalls on their balance sheets which are mark-to-unicornTM, yet which generate zero cash flow, even as banks have to pay out cash on their liabilities. In essence, the banks convert worthless crap into perfectly normal cash with the ECB as an intermediary: and that is all the LTRO is. Luckily, as we pointed out, even the idiot market is starting to grasp the circular scam nature of this arrangement, and the fact that it is nothing short of Discount Window usage, and because of that, the stigma associated with being seen as needing this last ditch liquidity injection is starting to grind on the banks. It is only a matter of time before hedge funds create portfolios in which they go long banks which openly refuse to use LTRO cash, and short all the other ones (read every single Italian and Spanish bank out there, and most French ones too) because at the end of the day one can only fool insolvency for so long. But once again we are getting ahead of the market by about 3-6 weeks. In the meantime, and looking forward to the next LTRO, whose cash will be used exclusively to build up "firewalls" ahead of the Greek default, here is what Goldman's clients expect to happen...
LTRO II: Investors expect €680 bn take-up, banks €562 bn taking LTRO total >€1 tn
Second and final three-year LTRO: Feb 28
The ECB’s first three-year LTRO auction in December resulted in a record (€498 bn) take-up. The second and final auction is planned for February 28; ahead of it, expectations are wide. To add clarity, we carried out an LTRO poll aimed at investors and the EU banks under our coverage. We received 343 responses from investors and 15 responses from banks (we cover 50 EU banks).
Take-up expectations exceed €0.5 tn…
Investors’ average expectation is for an aggregate take-up of €680 bn; banks that responded to our poll expect €562 bn. If these expectations materialize, the ECB will end up injecting €1.1 tn - €1.2 tn of three-year funds. At the bottom end of the range, this is the equivalent to 141% of 2012 and 78% of 2012-13 European bank bond maturities. It is also 6% of total Eurozone loans outstanding.
… due to expanded collateral, pricing
Banks see “attractive pricing” as a key reason to participate; investors “expanded collateral pool” [read any piece of worthless crap that is not nailed down]. The stigma has disappeared Our poll indicates that the ECB’s efforts to reduce the stigma related to its facilities have been successful. Investors perceive high take-up to be positive for bank share prices.
Average aggregate take-up expectation: Investors expect €680 bn, banks €562 bn
See Exhibit 1
Investors’ average expectation is for €680 bn of aggregate take-up; banks that responded to our poll expect €562 bn. Interestingly, the range of answers from investors is substantially wider (€300 bn-€1 tn) when compared with banks (€500 bn - €1 tn). This creates a partial mis-match between the expectations of banks and investors. Note that 40% of all surveyed investors expect a take-up exceeding €750 bn, compared with only 7% of surveyed banks.
If these expectations materialize, the ECB will end up injecting €1.1 tn - €1.2 tn of three-year funds into the Eurozone banks. At the bottom end of the range, this is the equivalent to 141% of 2012 and 78% of 2012-13 European bank bond maturities. It is also 6% of total Eurozone loans outstanding.
In that case, the ECB action will have substantially enhanced the stability of the European financial system.
Primary reason for participation: Attractive pricing and expanded collateral pool
See Exhibit 3
73% of banks in our sample see attractive pricing as a key reason for another strong take-up, followed by an expanded collateral pool (20%). Investors don’t seem to have a strong view; while expanded collateral pool is the most popular answer (36%), attractive pricing and reduced stigma, at a respective 31% and 27%, show a split view.
Use of funds: Paying down existing debt
See Exhibit 4
Both investors (56%) and banks (57%) expect the primary usage of funds to be paying down outstanding bank bonds, while initiation of new sovereign bond carry trades is only expected by a minority. Increasing lending to customers proved to be at the bottom of the expectations list, with only 4% of investors and 7% of responding banks choosing it as a primary use of new ECB funds.
Were these expectations to prove accurate, the implications would be far reaching:
- Firstly, a paydown of debt on a large scale would result in a reinvestment dilemma for current holders of European bank debt. Insurance companies, pension funds and large AM firms would need to find alternative investment opportunities. The scale of European bank bonds, as an asset class, is so large that it is comparable only to sovereign bonds or the combined size of all other non-financials corporate bonds outstanding.
- Secondly, it is indicative of the NIM expansion to be led by a reduction in the average cost of liabilities rather than a pick-up in asset spread (i.e. the carry trade).
Effects of the LTRO
See Exhibit 5
Investors and banks expect the LTRO to have a broad effect ranging from reduced funding costs, increased profitability and a slower pace of deleveraging. Importantly, while participants agree that the pace of deleveraging will slow, neither banks nor investors foresee the LTRO resulting in outright loan growth. This is consistent with investor/bank expectations that the primary use of funds will relate to reducing outstanding stock of bank bonds.
Impact on sentiment and share prices
See Exhibit 6-8
A large take-up (defined as >€500 bn) is seen as overwhelmingly positive for bank share prices (75% of investors/80% of banks agree on this). Furthermore, 57% of investors and 73% of responding banks see the ECB’s LTRO as a “game changer”, on par with the TARP programme in the US.
Finally, the banks’ expectation is that this LTRO is the final one, which supports their intent for large participation. Additionally, it could also express the view of sufficient funds in the system to guarantee longer-term stability. Half of the investors, however, see probability of further LTROs in the future as high, likely highlighting continued reservations as to the overall stability of the European financial system.
And the pretty exhibits:
Needless to say, none of these "conventionally accepted" things will happen. What will happen, is that the ECB's balance sheet will explode by another €1 trillion, and will account for nearly 40% of European GDP, banks will hunker down in anticipation of the Greek default, and everyone will pray that the cash will be sufficient to last through any and all unexpected consequences of first a Greek, and then a Portuguese default (and so on). However, as Lehman taught us, the cash will be woefully insufficient, and the Fed will have to step in and provide another $5-10 trillion, and maybe much more, in liquidity to prevent another systemic disintegration.
That is all.
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Let's use democracy to determine the bailout!
Better than Neel on a napkin!
pods
Fed will soon be unmasked as a complete farce. The magic show got tiring some time during the Greenspan era and only got more tragic from there...
Fed will soon be unmasked as a complete farce...
It can hardly be more obvious than it is already, yet there are so many who either don't see it, or have no idea how or why it is significant.
If the news gets really bad - if the ponzi can no longer be concealed from even the most ignorant of sheep - then isn't that the time when the magician will produce a shiny new war from up his sleeve?
A new shiny currency will be unveiled, outside of the control of politicians who ruined the last great system. Something international.
And the sheep will latch onto it as surely as a drowning man does an anchor.
pods
Blah Blah Blah, It is a conversation that never ends. Let the Defaulting begin so there is something new to discuss. GREECE DEFAULT!
You can see the LTRO anticipation.. bond yields backing up a bit.. people getting ready to go all Larry Fink and be 100% in equities..
Risk on Garth..
Goldman Conducts Poll On Self and Finds That Its Emloyees are Under Compensated
I notice the banks are expecting a much larger bail-out, I'm assuming they know something investors don't?
Yes, they know that they set the number.. not the gubbmint.
That shits's trademarked bitchez.
Long the banks that dont use below mkt funding, versus the ones that use it ?!?!...now that is one crazy trade idea there Mr Durden....
ECB has unlimited money, who cares.
"New York Fed Sells $6.2 Billion of Maiden Lane II Assets to Goldman Sachs"
Risk on
"...and the Fed will have to step in and provide another $5-10 trillion, and maybe much more...."
OMIGOD!!
DavidC
http://policyandmore.blogspot.com/2012/02/krugman-and-american-high-school-wage.html
,,,the bankers, and all their ''Legislator Political Slush Power'' sitting on thier behalf, have been caught by the numbers, and those numbers confirm the warning and good fight of patriots and persons in the U.S. Military that know Ron Paul is one of those people for good.
Now, take a look back, when Rosemary's Baby gave his Hitler rally cry to cheering morons in Germany and Egypt. The idiots in those crowds define the deception and the result upon this generation. How pathetic and stupid do those people now prove to be? What a joke, and they are still under the same influence, which defines their delusion.
Americans fell right in line and cast their vote for Rosemary's Baby, and the fact is, the vote for anyone but Ron Paul is not just a sign of deception and the ignorant people, but it is the revelation of evil people that need to be arrested because they are in agreement with criminals and the enemy of all people.
The global economic reality, kickng the nations and labor in the ass, all the way down to the bottomless pit, it has been established for the sake of the evil new world order agenda, which required the slaughter we now are suffering. The goal of the agenda defines the borderless criminal claim of dominion, which defines people of power whom are hell bent on destroying national distinction and the rule of law(s) that secures life, individual liberty and freedom. The people are now so captured, as a result of the success of this global agenda, they must now rise up and restore order because the numbers define that they are dead. This rise cannot be done through the Courts or through any vote because, the courts and the political system are corrupt and the numbers prove this beyond the shadow of doubt. The time has come for correction and the police and the military must stand down and support the people, but, that has not happened because of the nature of the system, which has captured the minds of those in service, because if they do not obey the new world order at hand they will suffer the wrath of the Executive rule of thumb, which represents the new world orders issued on behalf of the strong delusion of the leaders of the nations and the evil scum that have established the corruption which sucked labor dry and used the currency to chamber the rounds in the six six six suicide shooter.
....so how do good people prevent nations of people and their leaders from destroying themselves at this point?Well, history defines the body and blood that suffered the wine of wrath and the risen mercy that only a fool can deny. That is the image of the crucifiction and resurrection and every nation on Earth knows it. We are not going to escape this pattern now and nobody ever will escape judgment ...unless they agree to fulfill the law of mercy in agreement.
Now take a look around at our modern reality. We have access to all the information the world requires to restore order, and all the proof required to tell the story about the rise of corruption up to this point in history, and yet we are now in an economic black hole with armies at the ready. The fact is, the pattern for war is clear and the nations are not going to escape, because; the same evil which rejected mercy, for the sake of the evil claim of dominion, has overcome the host(s) body in agreement with the mercy required to sustain life liberty freedom and justice for all.
It's time for people to stand fast, do no harm and fear not. If you are not out in the street doing this now you are delusional and suicidal and there is no question why, it is because you are deceived, ignorant or evil. There is no ''gray area'' in this game, there never has been. You are in agreement with mercy or you are the self devouring beast. If you have any doubt, well, you only need to look upon this Zero Hedge site and the report on this Greek Dominio ...now don't yuh?
Ditto!!!!