Watch how the ECB acts, not it says

As we await the ECB's LTRO2 auction next week, there was a story on CNBC entitled ECB preparing to close liquidity floodgates:

The European Central Bank wants its second offer of cheap ultra-long funds next week to be its last, putting the onus back on governments to secure the euro zone's longer-term future.

There is no doubt that the ECB would rather not seen banks staying on LTRO life support, but what it wishes for and what it will do are two completely different matters. The story sounds like a plant, intended to warn the markets not to expect another round of LTRO.

The expectations that LTRO will stop on February 29 don't seem credible. Consider this Bloomberg story on February 10 of how Mario Draghi was practically begging banks to participate in the three-year LTRO program:

European Central Bank President Mario Draghi lashed out at bankers who said tapping the ECB’s three-year-loan program carries a stigma, after executives including Deutsche Bank AG (DBK)’s Josef Ackermann said they shunned the loans.

“There is no stigma whatsoever on these facilities,” Draghi said at a press conference in Frankfurt yesterday. “Some have made some sort of statements that I would call statements of virility, namely it would be undignified for a bank, a serious bank, to access these facilities. Now let me say that the very same banks that made these statements access facilities of different kinds -- but still government facilities.”

Which do you think represent the real views of the ECB?



Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

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