20 Mar 2015
TLTRO proves attractive despite falling funding costs – BAML
FXStreet (Barcelona) - Ruairi Hourihane, Rates Strategists at BofA-Merrill Lynch, comments on the ECBs TLTRO allotment, and further remains confident that excess liquidity might reach €1.3trn by 3Q16.
Key Quotes
“Yesterday morning, the ECB announced a €97.8bn take-up at its third TLTRO. Market expectations were for €40bn, showing the operation remained attractive despite bank funding costs falling dramatically since the beginning of the year. In our view, improving economic fundamentals, increasing loan demand and favorable regulatory treatment of TLTRO funds were behind the overshoot. Large country allowances justified our above consensus call.”
“So far, banks have generally been slow to disclose allotment amounts, making country and bank splits far more difficult than in September and December.”
“What we do know, however, is that Italian banks accounted for at least €35bn of the operation, which, according to our calculations, is close to 70% of their allowance.”
“Looking forward, with over €190bn of allowances carried over to the June operation (according to our estimates), and loan growth likely to continue in line with our above consensus GDP forecasts, we are comfortable excess liquidity can reach over €1.3tn by 3Q16.”
Key Quotes
“Yesterday morning, the ECB announced a €97.8bn take-up at its third TLTRO. Market expectations were for €40bn, showing the operation remained attractive despite bank funding costs falling dramatically since the beginning of the year. In our view, improving economic fundamentals, increasing loan demand and favorable regulatory treatment of TLTRO funds were behind the overshoot. Large country allowances justified our above consensus call.”
“So far, banks have generally been slow to disclose allotment amounts, making country and bank splits far more difficult than in September and December.”
“What we do know, however, is that Italian banks accounted for at least €35bn of the operation, which, according to our calculations, is close to 70% of their allowance.”
“Looking forward, with over €190bn of allowances carried over to the June operation (according to our estimates), and loan growth likely to continue in line with our above consensus GDP forecasts, we are comfortable excess liquidity can reach over €1.3tn by 3Q16.”