The small ‘rally of anticipation’ seen in the weeks leading up to the ECB and EU
meetings at the end of the week came to a stop after the ECB said it would not step up its bond buying programme. This was clearly a disappointment to the market and CDS indices have subsequently widened. Compared with last Friday spreads on the iTraxx Main are wider by some 4bp. In spite of having tested a level of 166bp only a few days ago, the index currently stands at 182bp. The Crossover index is some 40bp wider, now reading 782bp.
On a positive note, the ECB did deliver more than expected concerning liquidity. European banks will now have access to unlimited two long-term refinancing operations (LTRO) in which they can bid for three-year liquidity. In addition, the eligible collateral base is being expanded and this will significantly improve the liquidity situation for the banking sector and thus alleviate refinancing risks and thereby the speed of balance sheet deleveraging. Shortly after the announcement from the ECB, the Danish central bank announced its own three-year liquidity programme for Danish banks. We see this news as significant and very welcome as it should, to a large extent, help Danish banks address their funding needs in 2012 and 2013 and also enable them to comply with regulatory liquidity requirements. However, for the banks that are challenged on their capital position, nothing has changed.
The EBA also announced the results of its new capital exercise – this time based on full Basel II figures rather than the transition rules. The overall result was an increase in the capital requirement for European banks from EUR106bn to EUR115bn. Banks will now have until mid-2012 to address any deficiencies to a core tier 1 ratio of 9%. For the Nordic banks, the updated stress test delivered a favourable result as the abolition of the transition rules implies that Handelsbanken, Swedbank and Nykredit Realkredit will no longer need to raise additional capital. DnB is the only Nordic bank that will need to raise capital, but this was due to the capital allocation within the group rather than the capital position in itself. According to DnB, it has therefore already addressed the issue in Q4 11.
The positive sentiment in the first part of the week spurred a flurry of activity in the primary market with EUR benchmark deals from an array of European industrials, including Vinci, Vallourec, Eutelsat, Repsol, Linde, Unibail Rodamco and Akzo Nobel. All deals were well received in the market, except for the latter which saw its spreads widen just after launch. The current negative sentiment, coupled with many investors closing down for the year, leads us to expect little new issuance in the rest of the year.
meetings at the end of the week came to a stop after the ECB said it would not step up its bond buying programme. This was clearly a disappointment to the market and CDS indices have subsequently widened. Compared with last Friday spreads on the iTraxx Main are wider by some 4bp. In spite of having tested a level of 166bp only a few days ago, the index currently stands at 182bp. The Crossover index is some 40bp wider, now reading 782bp.
On a positive note, the ECB did deliver more than expected concerning liquidity. European banks will now have access to unlimited two long-term refinancing operations (LTRO) in which they can bid for three-year liquidity. In addition, the eligible collateral base is being expanded and this will significantly improve the liquidity situation for the banking sector and thus alleviate refinancing risks and thereby the speed of balance sheet deleveraging. Shortly after the announcement from the ECB, the Danish central bank announced its own three-year liquidity programme for Danish banks. We see this news as significant and very welcome as it should, to a large extent, help Danish banks address their funding needs in 2012 and 2013 and also enable them to comply with regulatory liquidity requirements. However, for the banks that are challenged on their capital position, nothing has changed.
The EBA also announced the results of its new capital exercise – this time based on full Basel II figures rather than the transition rules. The overall result was an increase in the capital requirement for European banks from EUR106bn to EUR115bn. Banks will now have until mid-2012 to address any deficiencies to a core tier 1 ratio of 9%. For the Nordic banks, the updated stress test delivered a favourable result as the abolition of the transition rules implies that Handelsbanken, Swedbank and Nykredit Realkredit will no longer need to raise additional capital. DnB is the only Nordic bank that will need to raise capital, but this was due to the capital allocation within the group rather than the capital position in itself. According to DnB, it has therefore already addressed the issue in Q4 11.
The positive sentiment in the first part of the week spurred a flurry of activity in the primary market with EUR benchmark deals from an array of European industrials, including Vinci, Vallourec, Eutelsat, Repsol, Linde, Unibail Rodamco and Akzo Nobel. All deals were well received in the market, except for the latter which saw its spreads widen just after launch. The current negative sentiment, coupled with many investors closing down for the year, leads us to expect little new issuance in the rest of the year.
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