ECB Lends

Arthi Gupta
21 Dec, 2011
New York City

European indexes edged higher after the ECB allocated

[R]12:30 PM Frankfurt – European indexes edged higher after the ECB allocated €489 billion to 523 euro area banks and extended maturities to three years. The Italian economy contracted 0.2% in the third quarter. Old Mutual agreed to sell the Finnish branch of Skandia Life Assurance.[/R]

The European Central Bank agreed to lend 523 euro area banks a total of €489.2 billion from the European Central Bank’s new three-year loan facility to ensure banks have enough liquidity to lend to businesses and individuals within the euro-zone. Funds are expected to be disbursed tomorrow.

The demand for cheap loans with longer maturities surprised the market as estimates of the demand ran between €50 billion and €400 billion and most analysts were expecting the demand to not exceed €250 billion, according to two separate surveys conducted by Reuters and Ticker.com.

The central bank provided three-years of loan for the first time and also expanded the kind of collateral it accepted. The bank provided additional liquidity at the time of the Lehman crisis in early 2009 but for a maturity of less than one year.

However, today the central bank to avoid the repeat of Lehman like crisis accepted outstanding loans as collateral from smaller banks that are active in the small business communities and hoped that more lending will ease the financing stress across wider swath of the economy.

Of the nearly half a trillion of loans from the central bank, €110 billion are expected to be available for new lending by the banks and the rest are to facilitate the rollover of the existing loans.

The large amount of loans also helped bond yields of Italy and Spain to ease as many banks used cheap loans to purchase sovereign bonds that pay higher interest rates. The loans from the ECB will charge 1%.

Fitch Ratings placed seven Italian banking groups'' long-term issuer default ratings and viability ratings on rating watch negative.

The list of banks on the watch includes, Banca Monte dei Paschi di Siena, Banca Popolare di Sondrio, Banco di Desio e della Brianza, Banco Popolare, Iccrea Holding, Intesa Sanpaolo and Unione de Banche Italiane - UBI Banca.

In Paris trading, the CAC-40 Index gained 20.61 or 0.7% to 3,076.00 and in Frankfurt the DAX Index edged higher 27.55 or 0.5% to 5,872.34.

Italy GDP Contracts

The Italian economy contracted 0.2% on a quarterly basis in the third quarter, following a 0.3% growth in the second quarter, according to data from the statistics office Istat.

Old Mutual Sells Finnish Branch

Old Mutual plc agreed terms to sell the Finnish branch of Skandia Life Assurance Company Ltd to OP-Pohjola osk. The transaction is part of Old Mutual''s commitment to streamlining its business. Financial details of the deal were not disclosed.

Astrium Acquires Stake in Space Engineering

Astrium, the wholly owned subsidiary of EADS said it entered into an agreement pursuant to which it will acquire 66.78% of Space Engineering. This acquisition of will enhance Astrium''s capability to develop and manufacture sophisticated telecommunications hardware.

Gainers & Losers

Areva SA, the French nuclear plant builder fell 1.2% to €18.06 after a broker downgrade.

HSBC Holdings PLC gained 0.7% to 487.40 pence after the banking and financial services organization signed an agreement to sell its private banking business in Japan to Credit Suisse AG as part of its broader restructuring of global operations. Terms of the deal weren''t disclosed.

International Consolidated Airlines Group, S.A. rose 2.1% to 148 pence after the airline company is in discussion to acquire Deutsche Lufthansa AG''s British Midland Ltd. Unit.

Safran SA climbed 1.2% to €22.50 after the high-technology company said it agreed with Thales to create an equally-owned joint venture for optronics systems and equipment.

Swisscom AG dropped 0.5% to Sfr345.90 after the telecommunications provider said it entered into a five-year contract with LM Ericsson Telephone Co. for mobile-network modernization.