$641 billion to European banks from ECB – Santanomics
It is Christmas season
And it is every Christian’s right, to expect freebies and goodies from Santa Claus.
Since appearances must be kept, the European Central Bank (ECB) decided to become Santa Claus this year.
The ECB decided to match the US$700 billion bailout package (TARP).
The European Central Bank on Wednesday attempted to send a strong signal to financial markets by offering to loan $641 billion to 523 euro-area banks in a massive three-year funding operation.
The bank-funding move by the region’s central bank, known as a longer-term refinancing operation, or LTRO, is open to lenders across the euro zone. The figure came in well above a Reuters forecast for $408 billion. The loans run for three years.
The loans expand the central bank’s balance sheet by 20%, according to Louise Cooper, analyst at BCG Partners.
A breakdown of which financial institutions were among the bidders for the funding was not immediately available.
A representative from the European Central Bank‘s press office said that the central bank would not be releasing the names of the banks that applied for loans. Nor would it provide a breakdown of loans by euro-zone nation.
The LTRO operation was the first three-year funding operation undertaken by the central bank. The funds are borrowed at its average benchmark interest rate, which stands at 1%.
Ahead of the auction some media reports and analysts suggested that the drive to increase liquidity across the region was part of an effort to encourage banks to purchase government debt. (via ECB lends $641 billion to European banks – MarketWatch).
Bigger than expected, the LTRO has been received with mixed feelings by analysts.
The ECB said 523 banks requested €489 billion ($641 billion) in funding from the central bank in a bid to boost liquidity.
A Reuters consensus had predicted funding requests worth €310 billion.
“The good news is a lot more banks will be well funded throughout the next three years. They need to place the money short term and will be buying bonds in European sovereign countries, obviously,” said Christian Tegllund Blaabjerg, chief Economist at FIH Erhvervsbank.
“But on the flip side of the coin, it also signals a lot more banks than originally thought need capital and that is negative news,” he said. “It sort of implies the banking sector is far worse off than originally expected.” (via ECB funding boost short-lived in Europe – Europe Markets – MarketWatch).
Coming back to the Christmas season.
Some analysts decided to run old number through their computers. What they found is that there is some kind of ‘season’ in the market also – around Christmas.
The stock market, at long last, is about to enter the seasonally favorable period that honestly can use the name “Santa Claus Rally.” It begins at the close this coming Friday, the last trading day before Christmas, and lasts until the end of the year.
It’s not a very long period of favorable seasonality — just one week, after all — but the historical odds are quite impressive.
Consider the performance of the Dow Jones Industrial Average DJIA -0.49% during this period. Since 1896, when this benchmark was created, it has produced an average gain between Christmas and New Years of 1.07%. On an annualized basis, that works out to a gain of more than 80%.
The market’s performance during this period has been relatively consistent, turning in a gain 78% of the time. That compares to a gain rate of 54% for all other weeks of the year.
What accounts for this seasonal strength? A fascinating research study suggests that it has something to do with Christmas. Click here to read their study. (via Here comes good old Santa Claus – Mark Hulbert – MarketWatch).
In the meantime, let us also remember how gold prices in the first 2 weeks of December 2011 have been soft. And probably it is Arab gold that is being dumped into the markets.
Also remember that more noise works better than censorship.
- ECB loans highlight funding pressure on eurozone banks (guardian.co.uk)
- ECB Update: Not Clear Record LTRO Will Boost Sovereign Bonds (forexlive.com)
- ECB lending: What the analysts say (business.financialpost.com)
- ECB: Concerned About Independence Of Hungarian Central Bank (forexlive.com)
- NY Fed: Foreign Central Banks Borrowed $9.89 Billion in Latest Week (blogs.wsj.com)
- Bini Smaghi Says ECB Should Use QE If Deflation Danger Arises (businessweek.com)
- Treasurys turn up after ECB lends a lot (marketwatch.com)
- Banks Stash Money With European Central Bank (foxnews.com)
- Nervous banks stash billions with ECB (guardian.co.uk)
- Overnight deposits at European Central Bank hit year high in sign of mistrust (thestar.com)