European Banks Bid

Devan Biswas
29 Feb, 2012
New York City

European Central Bank second liquidity operation attracted

[R]4:10 PM Frankfurt – European Central Bank second liquidity operation attracted €530 billion loan demand from 800 banks increasing the total liquidity in the financial system by more than €1 trillion. Stocks traded higher and the euro edged lower. Yields on Italian and German bonds edged lower.[/R]

European markets were calm after the European Central Bank loan program attracted strong demand for extended loans and Greece raced to approve more austerity measures to meet conditions laid out by international lenders.

The European Central Bank’s extended loan program attracted demand for €529 billion from 800 banks. The second funding operation in as many months increased the total liquidity in the financial system above €1 trillion that eased pressure on the sovereign bond rates.

The second installment of the extended loan operation, called Long Term Repo Operation, is not expected to be followed by third round as the first two rounds have removed much of the market anxiety for now.

Banks are raising cash with no conditions attached and are expected to increase lending to households and small businesses however most banks are parking the newly minted cash with the central bank and increase the purchase of government bonds.

FTSE 100 index eased 1.1 to 5,927, DAX 30 index gained 38.4 to 6,926 and CAC 40 index added 18.9 to 3,473.

The euro declined after the central bank’s liquidity operations and stock indexes generally traded higher. The latest round of additional liquidity is helping government to sell bonds and is expected to benefit Italy in its upcoming debt auctions in March and April.

Italy sold €19 billion of new debt in February and is expected to sell €45 billion of debt each of the two next months.

The yield on 10-year Italian bond declined to 5.27%, a five month low and 2-year note yield fell 24 basis points to 2.27%, a15-month low. German bund yields also edged slightly lower.

Greek lawmakers and government raced to approve more austerity measures demanded by international lenders as Prime Minister Lucas Papademos arrived in Brussels to meet with European Commission President Jose Manuel Barroso and other commissioners.

In Athens lawmakers are set to approve the measures to cut spending in defense, pharmaceuticals subsidies and pensions totalling €3.2 billion.

Stock Movers

Peugeot SA declined 1.4% after media reports suggested that General Motors is wavering and may not be ready to take stake in the automaker that may lead to more job losses at the French auto maker.

British Air’s parent IAG increased 1% after it reported higher than expected full year profit in 2011 on larger than expected cost savings from the BA-Iberia merger. The company warned that the current year profit is expected to be hit with higher costs.

UK based television channel operator ITV soared 7.6% to 86.60 pence after it reported better than expected earnings helped by its own content production unit’s performance.

Weir Group declined decreased 2% to 2,158 pence after 34% increase in full year profit was ahead of market expectations.

Erste Group Bank soared 7% to €19.20 after it reported fourth quarter net income of €254.1 million and said it increased provision for losses linked to loans in Hungary by 12% on 2011. The bank also said its exposure to debt of Italy, Portugal, Spain and Greece declined to €553 million in 2011 from €2.2 billion in 2010.

The bank had said in October that it is likely to lose €800 million in 2011 on losses in Hungary and euro zone debt.

Italian Publisher Gruppo Editoriale L’Espresso said net income in 2011 increased 17% to €58.6 million meeting the market expectations and proposed a dividend of 6.29 euro cents. However, the publisher said 2012 net income is expected to fall on weak advertising sales.