Draghi press conference: Risks to the downside
Yesterday 08:58 a.m. ET • DB • SA Editor Stephen Alpher
The ECB staff has cut its growth and inflation projections, and sees risks skewed to the downside, says Mario Draghi in opening remarks at his press conference.
The central bank earlier fired its bazooka, cutting rates, boosting QE, and announcing four new LTRO operations.
Staff sees inflation at just 0.1% this year vs. its previous forecast of 1%. For 2017, inflation is now seen at 1.3% vs. 1.6% previously.
Rates will remain at present or lower levels for “an extended period,” says Draghi.
The banks are partying: Deutsche Bank (NYSE:DB) +5%, Santander (NYSE:SAN) +4.9%, Credit Suisse (NYSE:CS) +1.8%, UBS +1.7%, ING +5%, BBVA +5% premarket
Previously: Stocks jump higher after ECB unloads bazooka (March 10)
Extraordinary measures once again.
The pessimistic view is that we have currency wars around the world and this is another example. The practical effect is to raise the value of the dollar.
The tide will soon turn on sentiment related to easing monetary policy. This is a joke. It obviously hasn’t worked, but this time it will… And banks are rallying why? Because they will earn less on a NIM basis? Or is it because growth is slowing and will slow further in the future? This market is so distorted. These policies will ultimately have to be unwound and when that occurs we will all feel the pain. Such shortsightedness on the part of central bankers.
ECB’s decision for lower rates and free money for banks is giving today a very positive image for EU banking stocks. However the main question remains: who will absorb all this liquidity? IMO the success for EU expansion will not come just from lower rates and high liquidity. These are not enough. Without a demand for new loans and taxation reforms there can be no expansion.
A flattening yield curve is very negative for bank stocks and highlights trouble for the economy in general. Not sure I follow your comment. European bond yield curves have been flattening for years, hence low European bank stock prices. In fact, some European bank stock prices are lower than they were at the lows in 2008-2009 (and many very near those prices). These new initiatives won’t do anything for the European economy.
Banks with negative interest do nothing for bank or investors. Waiting for next crash n burn
Can you print a negative -$1.00 lol
What does LTRO mean?
this is just a bailout for the banks holding $hi++y paper. they’ll sell their underperforming, er, I mean “investment grade” paper to the CB at a profit (amazingly) and their balance sheets will sparkle like a recently-shined urinal.
How come all these EU banks are up as Draghi is announcing a con’t low (or even lower) rate environment? Are they expecting an (unlikely!) economic boost from those ECB measures that could outweigh the negative effects for banks of lower rates? Go figure!
ALL THE PROFIT GIVEN BACK AND THE EURO STRENGTHEN! WOW! SEASAW TRADERS……ANY WHICH WAY NOT SHORTING THIS MARKET!
As I, Sananda, see it, this is an arrangement for US shareholder’s adjustment as European Central Banks and Regulators. Goldman says buy. Everybody says buy cheap undervalued European banks, and stock markets, and worlwide electronic market business and the derivative-equity exchange. Really, Corporate America introduced liberalism as a war tool in economy. The conquered everything. They are sharing the boon now. Lower interest rates, keep the money running with less profits for the bank, who have, at leat a third of their assets in toxic, degrading losses. But as they loose profit in the credit business and loose revenue into the derivative investment, defaults on credits become property as economy is and the value of property is extremely understimated by a socialist banking system that impoverishes the mass of productive classes, overruled, also by treason to law, by a 1% of oligarch aliens from the black hole.
Buy European banks, they’ll loot all there is left as production falls.
What does LTRO mean?
This is what Financial Times says and it doesn’t smell but of bailout again, but, when they say liquidity, I assure you we will never know if it was really insolvency. This is under control. We will find out when the Federal Reserve bails out and takes over the BCE ,openly. Maybe in days time. Things are going so sbsurd!
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Definition of long-term refinancing operation – LTRO
The European Central Bank’s long-term refinancing operation is a process by which the ECB provides financing to eurozone banks. The stated aim of the LTRO is to maintain a cushion of liquidity for banks holding illiquid assets, and thus prevent interbank lending and other loan origination from seizing up as they did in the credit squeeze of 2008.
The ECB also provides liquidity to banks through its main refinancing operations, which have two-week and one-month maturities. Until early 2008, the longest LTRO maturity was three months. Since then the ECB has successively introduced six-month, 12-month and 36-month terms for LTRO finance. Each of these new issues has been heavily subscribed, with eurozone periphery banks in Ireland, Italy, Spain and Greece taking the majority of the first 36-month issue in late 2011. The second 36-month issue in February 2012 was closely watched as an indicator of the health of eurozone banks.
The collateral posted to the ECB is valued by applying a haircut to its market value, where the size of the haircut depends on three factors – the type of asset, time until maturity, and its credit rating. Credit ratings are broken down into three classes corresponding to ‘double A’ or above, ‘single A’, and ‘triple B’, on a ‘second-best’ basis. Eg. to fall into class 2, a security would have to be rated single A or above by at least two major agencies. Alternative forms of rating are acceptable for bank loans which are not rated by the major agencies.
The ECB has waived the credit rating requirement for Greek, Portugese and Irish sovereign debt, although it briefly suspended Greek government debt from being used as collateral when it was rated as ‘selective default’ by S&P.
A large portion of the financing provided to eurozone banks through the LTRO was used to buy periphery sovereign debt. This became known as the ‘Sarko trade’ after Nicolas Sarkozy suggested that the LTRO meant that the Italian and Spanish governments could depend on their countries’ banks to buy their bonds. The ECB is not allowed to provide direct support to Eurozone governments. 
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