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LTRO 2 Bring Down: €529.5 Billion Gross, €311 Billion Net; Discount Window Stigma Resurfacing

Tyler Durden's picture


Just like the first time around, the net gain from the LTRO when taking into account rolling off instruments, will be lower than the Gross amount. How much? According to SocGen, the final number by which the ECB's deposit account will increase will be about €210 billion less than the overhead number. From SocGen's Lauren Rosborough: "The LTRO outcome: €529.53bio was allocated to 800 institutions (compared with €489.19bio allocated to 523 institutions in Dec). The net increase, according to our economists, is €311bio (adjusted for yesterday’s MRO reduction, 3m LTRO allotment this morning, and the roll-off of the 3m and 6m LTROs tomorrow). The allocation was above our and at the upper end of the market range of expectations. After a brief and limited positive risk move (AUD/USD spiked to 1.0857), currencies are broadly unchanged and the EUR/USD is lower, possibly reflecting positioning unwinds. The LTRO outcome opens the way for further positive risk moves (high-beta, non-Japan Asia, lower DXY) but recent price action suggests to us that the rally is fatigued." Net: this means that following settlement, European banks will park not €500 billion but up to €810 billion with the ECB, on which they will collect 25 bps (while paying 1%, aka inverse carry as described here first). It also means that in three years Europe's bank will have to not only pay the ECB €1 trillion in case (assuming there is no perpetual rollover of the LTRO, which there will be), but also delever by another €2.5 billion, for net asset drop of €3.5 trillion. Good luck building up shareholder equity by the same amount to offset unchanging liabilities.

But this is nothing new. What is, at least to Mario Draghi who openly refuted it at the last ECB press conference, is that banks are openly denying they used the second LTRO.


and the piece de resistance:

  • King Says U.K. Doesn’t Need LTRO as Banks Have Enough Liquidity

But, but, why would they do that if there is no stigma. Hmmm Mario? Maybe, just maybe, and for the same reason why banks loathe to borrow money from the Fed's discount window, because there is.

We fully expect the "Long Non-LTRO bank, Short LTRO" bank pair trade to be the most profitable source of alpha for a long time.

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Wed, 02/29/2012 - 09:28 | 2207450 bdc63
bdc63's picture

"discount window stigma" ... now that's an oldie but a goodie ... thanks for the laugh

Wed, 02/29/2012 - 09:50 | 2207527 SheepDog-One
SheepDog-One's picture

Its like a crack whore thats embarrassed to show her ankle in public?

Wed, 02/29/2012 - 10:22 | 2207618 maxmad
maxmad's picture

Is that why meh sister only wears pants?

Wed, 02/29/2012 - 11:16 | 2207820 trav7777
trav7777's picture

clan tactics for financial domination....use your cousins who run the banking system to "borrow" at favorable rates and buy up everything.  buy up hard assets, buy up business, buy up countries, hell, even force a hyperinflation, blow up all your own liabilities while retaining all your claims to assets

Wed, 02/29/2012 - 10:44 | 2207680 StychoKiller
StychoKiller's picture

Related to "The Masochism Tango" perhaps?

Wed, 02/29/2012 - 09:26 | 2207453 firstdivision
firstdivision's picture

If the UK banks don't have enough liquidity right now from all the BOE QE operations, they would be better off killing themselves. 


Shhh...don't mind the USGB's pricing in a shit storm.

Wed, 02/29/2012 - 09:27 | 2207459 bdc63
bdc63's picture

banks are like vampires ... they never die no matter what you do to them


Wed, 02/29/2012 - 09:29 | 2207463 firstdivision
firstdivision's picture

Barings died a quick death, as did Lehman.

Wed, 02/29/2012 - 09:33 | 2207471 bdc63
bdc63's picture

Lehmans was sacrificed at the vampire's alter

Wed, 02/29/2012 - 09:41 | 2207511 Ghordius
Ghordius's picture

the Altar of Fear and Despair - Honk promised then tanks in the street

Wed, 02/29/2012 - 11:39 | 2207927 jcrockett870
jcrockett870's picture

Barings was purchased by ING and Lehman was purchased by Barkleys.  They are like living dead.

Wed, 02/29/2012 - 09:27 | 2207455 battle axe
battle axe's picture

Of course there is a stigma, it stinks to high heaven...Also just the tip of the Iceberg showing how badly banged up the European Banks are..

Wed, 02/29/2012 - 09:31 | 2207475 orca
orca's picture

Typo: "but also delever by another €2.5 billion"
Should read "delever by another €2.5 trillion"

Wed, 02/29/2012 - 09:32 | 2207480 orca
orca's picture

And by the way, only Dutch banks are denying using LTRO. Why is that?

Wed, 02/29/2012 - 09:35 | 2207486 The Swedish Chef
The Swedish Chef's picture

Swedish banks too.Stigma I guess. The desire to evade government intervention down the road could be another reason.

Wed, 02/29/2012 - 09:40 | 2207507 Ghordius
Ghordius's picture

exactly - once in, you have to dance at the tune of the ECB

Wed, 02/29/2012 - 10:12 | 2207591 disabledvet
disabledvet's picture

"Hotel California." no thanks. Check please!

Wed, 02/29/2012 - 10:25 | 2207630 orca
orca's picture

Sweden is not in the EUR, Holland is.

Wed, 02/29/2012 - 09:36 | 2207490 NEOSERF
NEOSERF's picture

Because they all have their fingers in the dikes

Wed, 02/29/2012 - 09:50 | 2207494 bdc63
bdc63's picture

Maybe they aren't interested in buying any more Greek or Italian paper, even if they could do so with 1% loans ...

Think of the ECB like the mafia -- if they do you a favor, someday they will make you an offer you can't refuse.

Wed, 02/29/2012 - 12:12 | 2208160 Flying Dutchman
Flying Dutchman's picture

Because they didn't need the LTRO?

Ha, I love RaboBank. Safest non-governmental, private bank in the world.

Wed, 02/29/2012 - 12:16 | 2208161 Flying Dutchman
Flying Dutchman's picture

Hmm, hitting the 'save' button twice


Wed, 02/29/2012 - 09:36 | 2207489 JPM Hater001
JPM Hater001's picture

So, the next European debt circle jerk is in full swing.

Wed, 02/29/2012 - 09:37 | 2207497 disabledvet
disabledvet's picture

the private sector has already moved on...and so should you. "stigma" is as presented here "just a word" that says "those that deny have already been left behind." again..."stick with cloud computing, stick with natural gas plays"...this is where the "non-corrupt money" still frolicks and plays by the sea-shore!

Wed, 02/29/2012 - 09:38 | 2207498 Sean7k
Sean7k's picture

Stigma? How about the stigma of dumping 800 billion in liquidity into the system? This is almost laughable. 

Debt already exceeds the ability to pay by multiples. Soon, the banks will be sitting on collosal amounts of shadow assets AND deposits, yielding them what? Making them vulnerable to the first set of countries that demand something other than fiat in exchange for real goods.

What if that nexus becomes The Southeast Asia Cooperative with Russia and Iran? We haven't got a military option for that. The US might survive having our gold (maybe) and other country gold on deposit, but everyone else is screwed. 

Maybe there will be an invasion of New York, but only for the FED vaults...

Wed, 02/29/2012 - 09:42 | 2207512 Chimerican
Chimerican's picture

LTRO liquidity injections are loans. All new euros are backed by collatteral. Interest rates are de minimus. Without the liquidity the banks would fail. With liquidity, the banks survive. It's that simple people. The loans will be repaid from profits generated by a growing economy.

Wed, 02/29/2012 - 09:44 | 2207517 Sean7k
Sean7k's picture

BWAHAHAHAHAHAHAHA. Stop that. I'm drinking coffee. I can't afford to lose another laptop.

Wed, 02/29/2012 - 09:49 | 2207521 bdc63
bdc63's picture

Keynes ... is that you?  I thought you died decades ago ...

Wed, 02/29/2012 - 09:49 | 2207524 LawsofPhysics
LawsofPhysics's picture

"...repaid from profits generated by a growing economy."


LOL!!!!  Yes, because infinite growth in a world of finite resources is all but assurred.  Energy has something to say about your prediction.  Thanks for the laugh.  Fortunately, I have not gotten any coffee yet.  Fuck the paper pushers, know the REAL value of your labor?  You fucking better.

Wed, 02/29/2012 - 09:43 | 2207514 RobotTrader
RobotTrader's picture

U.S. "Fumble Managers" running the biggest mutual funds are now facing the stigma of not having an outsized position in AAPL.


Unless your statement shows a 10% weighting in that one stock alone, you are going to get fired.

Ditto for any stock in the IBD Top 50 that is consumer-related.  Managers are now living in total fear of being underinvested in stocks with huge PE ratios and have the strongest momentum.

How stupid is that?

Wed, 02/29/2012 - 10:18 | 2207608 disabledvet
disabledvet's picture

Well I'm screamed at everyday by the media for recommending a utility. then they stick some girl on the tele and tell her to take her clothes off. suddenly that utility stock looks better to me. Not that you can't margin up on your options account of course. "man's gotta eat" as they say. Shall I throw in my opinion of how you live your life too?

Wed, 02/29/2012 - 12:13 | 2208168 ghostfaceinvestah
ghostfaceinvestah's picture

This is one of your best posts in a long time.  You are 100% correct.  The last time I saw this was in late 1998.  Believe it or not many fund managers resisted the tech bubble at first, but were eventually "forced" to participate for the reasons you cited.

This bubble is much more like the tech bubble than the housing bubble. The housing bubble was fueled largely by shadow banking liquidity.  The tech bubble, like this one, was fueled directly by central bank liquidity.

This one will end just as badly.  It's really a shame the Fed ignores its unwritten third mandate of deflating asset bubbles.

Wed, 02/29/2012 - 09:44 | 2207518 Martin W
Martin W's picture

Hari-Kari Bitchez!

Wed, 02/29/2012 - 09:52 | 2207533 ghengis86
ghengis86's picture

Do I have this right: LTRO banks would rather bleed 75bps than buy any 'guaranteed' sovereign bond? Is there anything else they can use LTRO cash to buy?

Finally, is this like using a Check-Into-Cash/Car Title Loan and putting that money in a shitty CD at your bank?

My apologies in advance for noob questions

Wed, 02/29/2012 - 09:56 | 2207541 Sean7k
Sean7k's picture

Basel III capital requirements and shadow asset losses.

Wed, 02/29/2012 - 09:56 | 2207544 SheepDog-One
SheepDog-One's picture

Hell I dont know, its total insanity! Im convinced theyre just trying to get a day or 2 more time until the next false flag attack that brings it all down one morning. I think every morning theyre just trying to get thru the days close.

Wed, 02/29/2012 - 09:52 | 2207536 Dick Darlington
Dick Darlington's picture


Wed, 02/29/2012 - 10:21 | 2207615 disabledvet
disabledvet's picture

"so much for the stigma."

Wed, 02/29/2012 - 09:53 | 2207538 SheepDog-One
SheepDog-One's picture

Hey remember how they all 'learned their lesson real good this time' in 2008 when it all blew up from all kinds of insane leveraging and derivatives BS not even a PHD in physics could possibly understand...yea sure they did...as they got rightt back to doing it all only 1,000 times worse.

Wed, 02/29/2012 - 09:58 | 2207552 LawsofPhysics
LawsofPhysics's picture

Give the paper-pushers some credit SD, they have managed to change the laws so that they can not be prosecuted this time around.

Wed, 02/29/2012 - 10:01 | 2207557 SheepDog-One
SheepDog-One's picture

WTF...no one was prosecuted LAST time!

Theyll  get prosecuted this time with piano wire by the bankrupt hordes one morning when this shit house collapses again.

Wed, 02/29/2012 - 10:24 | 2207620 LawsofPhysics
LawsofPhysics's picture

Right, when exactly?  FYI- during the savings and loan bullshit (the first time banks tried to separate the notes on mortgages) lots of bankers went to prison, so you are not entirely correct.

Wed, 02/29/2012 - 10:03 | 2207566 SheepDog-One
SheepDog-One's picture

Allright boys! Put on your gloves! We got some heavy lifting to do to get these markets back over their all-time previous megabubble top, this time during a real depression! Heave-HO! 

What a damn joke.

Wed, 02/29/2012 - 10:24 | 2207623 disabledvet
disabledvet's picture

I don't know why I find this hilarious but I do. I've been trying to find that scene where TPTB order the plebes to start rowing the Exxon Valdez.

Wed, 02/29/2012 - 10:53 | 2207708 StychoKiller
StychoKiller's picture

The rowing master tells the rowers, "I've got some good news and bad news.  First the good news:  you get tomorrow off.  Next, the bad news:  the Captain wants to go waterskiing today!"

Wed, 02/29/2012 - 10:33 | 2207652 wandstrasse
wandstrasse's picture

New phenomenon: bullish depression..

Wed, 02/29/2012 - 10:09 | 2207578 Mercury
Mercury's picture

 "The LTRO outcome: €529.53bio was allocated to 800 institutions (compared with €489.19bio allocated to 523 institutions in Dec)...."

I wouldn't have guessed that Europe had 800 banks left at this point in history.

Wed, 02/29/2012 - 10:09 | 2207580 drivenZ
drivenZ's picture

 of course the banks that didnt participate will try to spin their non participation into a positive. It's called marketing. But just because banks are taking money doesn't mean they're all insolvent. It's nearly free money. If you've got somewhere to stash it for 3 years and collateral to post, why not?

besides, ING and Rabo did tap the last LTRO so the stigma argument is almost moot. is tapping 1 LTRO better than 2? C'mon.   

Wed, 02/29/2012 - 10:10 | 2207585 Dick Darlington
Dick Darlington's picture

Germany talking down hopes of bigger "firewall". Firewall, hehehee.






Wed, 02/29/2012 - 10:13 | 2207592 chinaboy
chinaboy's picture

Keep doing what they are doing. They will find themselves a province of Greek republic.

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