Tuesday, September 11 15:00:05
A fundraising surge by banks in the euro zone's indebted southern half, sparked by the ECB's commitment to backstop the bloc, has not been matched in the moribund market for unsecured lending between financial institutions.
While asset managers hungry for returns and assuaged by the latest crisis-fighting plans are suddenly investing in Europe's riskier names, the confidence to lend between banks, shattered by years of financial crisis, is taking longer to rebuild.
The ECB has brought a period of optimism to financial markets with its plan to buy government bonds from peripheral issuers like Spain and Italy, providing they sign up to the conditions of the region's bailout fund.
As a result, Monday saw the third largest total for euro-denominated corporate debt issuance in a decade, as well as the first sale in six months by a second-tier financial borrower from the euro zone's troubled peripheral states.
However, the door to wholesale funding markets, where banks borrow from each other to lend to households and companies at a profit, remains firmly shut for most Spanish and Italian banks, and few in the market expect a revival any time soon.
Three-month Euribor, a notional interbank borrowing rate determined by a panel of banks, fixed at a record low 0.258 percent today, but traders said that rate was artificially depressed by ECB banking liquidity injections and that prices for lending to peripheral institutions had long since ceased to be quoted. "The unsecured market hasn't seen a change so far... it will still take a lot of time before money market credit lines will be open for trade," said a money market trader in Germany. The interbank unsecured market, where money is lent without the backing of collateral, was once an important source of cheap and plentiful funding for banks and contributed to a boom in lending to consumers and businesses.
But, hit first by the 2008 global financial meltdown and then by the euro zone sovereign debt crisis, credit lines have steadily dried up to all but the region's most secure banks - hampering economic activity and reflecting the extreme caution attached to unsecured lending.
"Some of the French banks from our perspective are a no-no, and the Italians etc. would be a no-no. But certainly some of the top tier German banks we would be comfortable with," said the head of money markets at one London bank who declined to be named due to the sensitivity of the issue.
The rush to bring senior and covered bond issues to market painted a rosy picture of sentiment, but analysts said other factors were also behind the clamour to issue debt and tempered hopes of an eventual revival in interbank lending.
"A market which has been undersupplied for quite some time is now in catch up mode and investors are quite happy to take on these volumes," said Ted Packmohr, head of covered bonds research at Commerzbank.
"Everybody is pressing into this short, open window and I don't know that you can overinterpret it (to say) that this will spark activity in other areas."
For Spain, uncertainty over the outcome of a banking review to determine who needs what from an EU banking bailout agreed earlier this year, along with long-term questions over the sector's restructuring, could keep the interbank funding door shut for the foreseeable future.
"There is still quite a lot of data to be expected that will have an impact on accessibility of interbank lending," Packmohr said. (C ) Reurters