Thursday, February 23, 2012

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.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

1 comment:

Unknown said...

Great point by Cam. There is tough talk from Draghi to please Germany, but in reality, LTRO will go on apace. There was an article in the Daily Telegraph today about Lloyd's bank planning to go to the ECB for funding. Some people are moving out of stocks to alternative investments, but I just bought the Barclays on the LSE.