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Wednesday, December 21

21st Dec - LTRO Response

 I've posted a lot of stuff previously on LTRO during the past week or so, here are today's stuff. Evening post later.

- MoreLiver

Banks Will Still Be Under-Capitalized, UBS Does The LTRO MathZH
UBS: it is highly likely that any term profit and loss improvement seen by banks will fall short of providing enough punch to resolve the issue of bank undercapitalization by the end of June 2012.

The ECB’s all you can eat cheap money buffet – a primeralphaville / FT
Rabobank’s preview. Morgan Stanley gave their yesterday.

Credit enhancement, Italian sovereign feedback-loop editionalphaville / FT
On ‘quality’ collateral manufacturing in
Italy ahead of LTRO.

ECB's 3Y LTRO Huge Demand: Safety, Not Risk-OnZH
 initial very brief risk-on, followed by risk-off.

LTRO use at €489.19bnalphaville / FT
523 bidders

What The Analysts Are SayingZH
‘massive’, ‘higher-than-expected’, ‘This is an invitation to buy government bonds especially for smaller, unlisted banks, which do not take part in the EBA stress tests.’

Summary - LTRO Represents 20% Of European Bank Deleveraging NeedsZH
Full link to Morgan Stanley’s Bank Deleveraging report (25-Nov)

Gross LTRO Liquidity Injection - €489 Billion; Net: - €210 BillionZH
SocGen explains why the €490 billion LTRO number is misleading and why, net of rolls, the actual new liquidity is about 60% lower.

and so finally, the ECB (de facto Germany) has taken on the mantle of lender of last resort.  They will accept the toxic debt of the banks as collateral and throw money and anyone who needs it, just like the Fed did in 2008 after much hemming and hawing.  Just like we all knew they eventually would.

Classic Buy Rumor Sell Fact after LTROCredit Writedowns
The chief concern was that banks were running out of collateral and access to liquidity. That immediate problem has been addressed. To be sure, the crisis is not over. My "muddling through" hypothesis includes the ECB providing a backstop for banks (not sovereigns) in terms of liquidity.

LTRO apparently means buy the rumor, sell the fact!Saxo Bank
So without any significant improvement in sovereign yields, we are merely left with the fact that a whole lot of EU banks just got hold of a huge amount of effectively printed money – back door QE and therefore Euro negative.

What Does ECB’s Record Loan Mean for Europe’s Banks?The Source / WSJ
Comment round-up: more skeptical.

LATER ADD: Citigroup Analyzes The Failure Of The LTRO ZH
The remaining mystery is why the sell-off is so severe.  One dose of cold water were comments from the Italian Bank Association that EBA rules won’t permit Italian banks to buy sovereign debt