Summary Of Wall Street's Opinions On LTRO 2

Tyler Durden's picture

The following people are paid to have an opinion, whether right or wrong, so it is our job to listen to them. Supposedly. Reuters summarizes the professionals kneejerk reaction to the LTRO 2. Because when it comes to explaining why Europe's banks are not only not deleveraging but increasing leverage while paying an incremental 75 bps on up to €700 billion in deposits soon to be handed over to the ECB, one needs all the favorable spin one can muster.

From Reuters:


"To sum up it will have a positive impact in the short run, but there are questions about medium-term impacts. The ECB's ability to pull back these funds will be important."


"This is an astonishing amount. We have net provisions of liquidity of 307 billion euros and if we add in the 91-day tender, we have 313.5 billion euros. We have a lot of extra liquidity among euro area banks. It is almost impossible to underestimate the positive impact from the first LTRO. It's fair to expect a similar reaction from the second LTRO. Although we will not see an immediate reaction in financial markets. With the second LTRO, we have plenty of fuel for risk improvement, with a further narrowing in yields in Spain and Italy. We should probably see Euribor rates going lower. EONIA rates will probably not move much from these levels. They are already at rock bottom.

"This is one further step away from the abyss of the debt crisis that we saw before Christmas. The effect of the LTRO is basically like valium for financial markets.


"The ECB second 3-year LTRO has been successful. At a first glance, it looks like today's LTRO refi auction injected another (net) 250-300 billion euros of cash in the system.

"A high number of banks bid at today's auction - 800 - a sign that the "stigma" associated to the auction has somehow dissipated. Opportunity carry trades and the relaxation of the collateral criteria have certainly been key factors supporting the auction today. Further tightening in EMU periphery spreads can be expected now. However we rule out that the movement will be as pronounced as since the December 3-year LTRO as fundamentals don't justify another massive movement."


"You can't argue with 529bn, it's undoubtedly positive for risk assets and also will help to support core markets as initially banks need somewhere to store the resultant excess liquidity. Over the next quarter the supportive impact on Bunds is likely to abate though, as banks put the excess cash to work and there ma be more switching out of Bunds as investors continue to re-weight into the periphery."


"It can be seen either as glass half-empty, that is to say that banks are rushing to the ECB's till because they expect fresh difficulties ahead ... or glass half-full, given that the general environment has improved a lot since December and banks would be stupid to pass on this offer of cheap funding. Sovereign debt may be slightly less attractive than before in terms of yield, but it's still offering several hundred basis points and it's - almost - without risk."


"Given the up-take it shows there is still a major need for liquidity. The strong banks will most likely not have taken large amounts but the weaker, peripheral banks in Spain, Portugal and Italy will show big requirements for it and they will likely use the funds to do carry-trades on their respective countries sovereign debt."


"The number was broadly in line. There was some fear a low number would be negative for risk assets and in that respect it will have an immediate positive impact on risky assets. But let's step back and look further forward... new risks are now raised by the wall of maturity in three years time."


"This removes the systemic risk. The figure is not big enough to spark fears about the health of the peripheral, while at the same time it fuels hopes that it will help the economic recovery. Now the focus will turn to the ECB's overnight deposit facility. If the number falls, it means the money is being put at work. I'm staying 'long' euro zone equities, although I'll start buying put spreads soon to get protection against a possible short-term pull-back.


"It will probably help risky assets because the amount is a bit larger than what people were expecting. That should rather be helpful for the equity market, normally it means more money available for cyclicals and it would be positive for banks.

"I would have expected a negative impact on the euro exchange rate, but it's not so clear because if you believe that risky assets will be in favour, then the euro is seen as a risky asset versus the dollar.

"Now we have it and then people will move on to something else. I don't think this is significant good news."


"The ECB LTRO was a touch more than the market had expected, banks desperately needed the funding.

"It could prop up the equity market, but with another round of cheap money unlikely by the ECB I only expect it to be a slow move up."


"This is in line with our expectations. It may not lead to a boom in equity markets, but also not to a depression. The ECB's measures are still very supportive for the continuous recovery in economic sentiment, which should eventually lead to an acceleration in growth."


"The market will probably react positively. The large take up will support those who see it as helping issuance for sovereigns going forward.


"This will increase the level of excess liquidity pretty sharply which is ultimately positive or very positive for risk trades. Italian and Spanish bonds are likely to benefit from this and equity markets as well."


"The rally since the first LTRO has been impressive, sending the FTSE above 5900. Today's news that long term financing was more than the estimated 500 billion euros has taken the market by surprise and the resistance level of 5956-5966 could well be broken. The key question is what will the banks now do with the money?"

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maxmad's picture

Hopium running out, bitchez!

knight99's picture

WTF, Not one "analyst" could see that 800 banks need liquidity with no where to put it because interbank lending is frzoen as a negative. Talk about me being on one side of the boat while every other person is on the other. How about tomorrow CDS annoucment trigger hence the need for LTRO. FK this is getting tiring.

chindit13's picture

The interbank market will cease to exist.  There won't be any collateral left.

A trillion euros of LTRO and ZIRPetuity suggests the financial crisis is not quite over, despite cheerleader claims to the contrary.

bdc63's picture

Analysts only think short term and only think about markets.  There is little argument (and tons of evidence) that liquidity infusions are supportive to both.  But that "high" seems to last for shorter and shorter periods of time, before they need their next fix.

brewing's picture

debt bitcheeeezzzz...

Jefferson's picture

Looks like the banker boys think they are firewalled for the upcoming Greek tragedy.

bdc63's picture

well, they've had 2 years to build that firewall, during which time the entire European union has been laser focused on holding the thing together with duct tape while the firewall gets built if they haven't, then shame on them.

but one thing is for sure ... any bank that fails was picked by the ECB to fail a long time ago ... just like Lehman (who was being punished for not playing ball during the LTCM fiasco)

ZippyBananaPants's picture

ZippyBananaPants, Head of Animal House Capital


Was it over when the Germans bombed Pearl Harbor?

eddiebe's picture

What? Germany bombed pearl harbor?

Wolferl's picture

Sure. And we killed Abel too, the bibel is wrong.

swanpoint's picture

65 yard punt... the monster is still out there, it's a little futher away, but it's bigger now and meaner now.. bring on the bread, bring on the circus, may the wine flow like water.

swanpoint's picture

on second thought, oh fuckin' shit

Rip van Wrinkle's picture

"The effect of the LTRO is basically like valium for financial markets."


Dead right. You need more and more valium for the same effect and you eventually kill the patient stone dead.

hp12c's picture

"We all agree to kick to can as often as we can... I need another weekend of Bordeux & hookers at my weekend retreat in the country..."

chindit13's picture

Ben, you're a slacker!  The ECB is now up to a $4.3 trillion balance sheet, up 68% in seven months.  The ECB is now levered 39:1.

Helicopter Ben loses to Cropduster Draghi on all judges scorecards.

Looks like they get a sweep of both the Guttenberg and the Salvador Dali prize for excessive printing.

Wolferl's picture

Relax. Heli Ben will be back in November, after the US election.

WaEver's picture

Instead of asking wall street's opinions why not ask average joe what he thinks of creating money out of thin air. All these so called experts don't know what real work is, neither do they know the value of real work or how their absurd policies will destroy the value of money.

eddiebe's picture

So much money.. So much potential...So little political will to do something positive...Such a shame.

youngman's picture

and the next LTRO will be 1 trillion......amazing....and so it goes.....


"Sovereign debt may be slightly less attractive than before in terms of yield, but it's still offering several hundred basis points and it's - almost - without risk.""

just ask those Greek bond holders.....

disabledvet's picture

I prefer my spin to have some..."spin" myself:
someone needs to "pick up the beat" over there. bailouts are SO Roman Empire...

KickIce's picture

And what they are really thinking; woo hoo, we get to buy up more assets with 0s and 1s.

diogeneslaertius's picture

The following people are paid to have an opinion, whether right or wrong, so it is our job to listen to them. Supposedly. (gales of derisive laughter Bruce)

DarkStarDog's picture

Sucess is Failing to acheive.Utopia !

1eyedman's picture

wow.  such uniformity of opinion.   lets all re-read the article from yesterday by Penn about magic and markets.    bring in the herd, time for dinner (mine not thiers).

yes not one professional seems to think that unheard of liquidity ops around the globe indicate that markets are not healthy robust or able to sustain without massive valium.

forest and trees...but markets can remain irrational longer than  etc etc