{"id":1431,"date":"2014-07-04T12:00:00","date_gmt":"2014-07-04T12:00:00","guid":{"rendered":"http:\/\/starthostunlimiteddmffassi-ss.stackstaging.com\/bondworld.ch\/home\/sites\/20b\/7\/760c69a11c\/public_html\/investmentworld.ch\/index.php\/2014\/07\/04\/viewpoint-ecb-a-long-wait-after-the-june-measures\/"},"modified":"2014-07-04T12:00:00","modified_gmt":"2014-07-04T12:00:00","slug":"viewpoint-ecb-a-long-wait-after-the-june-measures","status":"publish","type":"post","link":"https:\/\/www.investmentworld.eu\/ch\/viewpoint-ecb-a-long-wait-after-the-june-measures\/","title":{"rendered":"Viewpoint: ECB: a long wait after the June measures."},"content":{"rendered":"

The announcement of an ABS purchase programme before the end of the year is very likely, while chances of full-fledged QE are now slimmer, as the ECB has expressed confidence on the impact of TLTROs on inflation….<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

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Intesa Sanpaolo \u2013 Research Department<\/strong><\/p>\n

For professional investors and advisers only<\/strong><\/p>\n

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The ECB meeting left rates unchanged, but brought the announcement that minutes will be published (in a form yet be defined) starting in January 2015, and that meetings will be held every six weeks, and no longer every four. The rhetoric was markedly accommodative, as widely expected. The ECB once again assured it is ready to use new non-standard measures, such as an extensive quantitative easing programme, in case of significant revisions to the medium term inflation scenario. However, Draghi specified that the Council first of all intends to verify the effects of the measures announced in June, and in particular of the TLTROs, which according to the ECB\u2019s structural models should contribute significantly to raising inflation back towards 2% by the end of 2016. As a result, we believe that the launching of a widespread asset purchase programme by the end of year is unlikely, with a probability of no more than 30%, whereas we still as likely that an ABS purchase programme might be announced by year end.<\/p>\n

The ECB also disclosed the operational details of the TLTROs and the templates to report credit data, in order to verify that banks respect the criteria to qualify for access to funds at a very strong discount. The obligation for banks to repay the loan upon failure to meet set benchmarks, should guarantee that the funds are effectively channelled to increase or at least not reduce lending compared to the trend recorded over the 12 months up to April 2014.<\/p>\n

However, it is still hard to assess the impact of the TLTROs on credit dynamics. The benchmarks set by the ECB are not particularly demanding and allow banks that are deleveraging to carry on their asset restructuring programmes until April 2015. Our impression is that TLTROs should guarantee that the process of restoring bank balance sheets to health will not result in a further restriction of credit in the next 12 months, and that starting in 2016, they might even help boost lending.<\/p>\n

The ECB opted not to impose limits on the growth of new loans to the non-financial private sector, and in particular on the share of the new loans that are issued to small and medium companies, rather than to large companies only as the latter already enjoy very advantageous conditions in their relations with banks. However, given the very low cost of funding for large corporates on the capital markets in the most recent period, new loans are likely to be issued in part also to small companies. Also, it is not clear whether the ECB will strictly check that the significant lower funding costs for banks will be effectively transferred to the cost of loans.<\/p>\n

More in detail, the operational details determine that:<\/strong><\/p>\n

1)<\/strong> for the first two operations on 18 September 2014 and 11 December 2014, the aggregate amount borrowed by a single counterpart through the two operations cannot exceed 7% of average total loans to the non-financial private sector (net of mortgages and securitisations) over the 12 months leading up to 30 April 2014. In essence, the ECB has not imposed a benchmark to access funds through the first two operations;<\/p>\n

2)<\/strong> the setting and respect of the benchmark applies to the six operations that will be held on a quarterly basis between March 2015 and June 2016. The benchmark is set at zero for banks that as at 30 April 2014 showed a positive 12-month moving average in loans\u2019 dynamics, and that therefore will have to keep unchanged the stock of loans compared to 30 April 2014. To the least, banks should therefore renew all the loans reaching maturity, or issue new loans for equal amounts. For banks which reported a drop in lending in annual terms as at 30 April 2014, the benchmark is set so that the trend of loans up to April 2015 continues to evolve in line with the trend recorded in April 2014. In essence, banks which need to advance further the deleveraging process, will be allowed by the ECB to do so gradually. Starting in April 2015, the benchmark will be zero for all the banks;<\/p>\n

3)<\/strong> banks will be allowed to participate individually or in pools, so as to maximise the impact. The pools will have to be formed by the end of July, and notice will have to be given to the national central banks (NCBs) by 8 August;<\/p>\n

4)<\/strong> banks which take out funds at TLTROs and fail to meet benchmark parameters by 30 April 2016 will be obliged to return the funds in full in the month of September 2016.<\/p>\n

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Appendix
Analyst Certification<\/strong>
The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.<\/p>\n

Important Disclosures<\/strong>
This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.
This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient\u2019s own judgement.
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Intesa Sanpaolo S.p.A. has formalised a set of principles and procedures for dealing with conflicts of interest (\u201cResearch Policy\u201d). The Research Policy is clearly explained in the relevant section of Banca IMI\u2019s web site (www.bancaimi.com).
Member companies of the Intesa Sanpaolo Group, or their directors and\/or representatives and\/or employees and\/or members of their households, may have a long or short position in any securities mentioned at any time, and may make a purchase and\/or sale, or offer to make a purchase and\/or sale, of any of the securities from time to time in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167 New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This document is intended for distribution only to professional investors as defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a printed document and\/or in electronic form. Person and residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under rules of the FSA.
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Valuation Methodology<\/strong>
Trading Ideas are based on the market\u2019s expectations, investors\u2019 positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and\/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and\/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.

Coverage Policy And Frequency Of Research Reports<\/strong>
Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer\u2019s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A\u2019s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI\u2019s web site (www.bancaimi.com) or by contacting your sales representative.<\/p>\n

Source: BONDWorld – Intesa Sanpaolo \u2013 Research Department<\/p>\n","protected":false},"excerpt":{"rendered":"

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