JP Morgan on Wednesday made a few hopeful remarks on EU banks’ financing needs by 2012 (not as dire as everyone believes) that our readers may want to savour. A couple of truths for a start, though:
“Ideally, banks should use as little as possible repo windows such as the recent three months-dollar one because it would restore confidence, despite delivering in the short term a fix for dollar-funding problems until the end of the year.
“Banks have not been able to issue unsecured bonds since mid-July. But in Europe, €20bn in mortgage bonds were issued in August. Even though after Lehman the bond market closed, banks need to start issuing at high prices if necessary so that confidence can return.
The relatively good news is that banks displayed some agility before these troubles got in their way
“and Europe has already issued 80% of the bonds with maturities in 2011. Even so, the story is very different in each country and Greece, Portugal and Ireland have required massive funding from the ECB. The Italians have issued 112% of their maturity in 2011, and the Spanish 78%. The French, €98bn vs. € 58bn of bonds with 2011 maturity. Curiously, the Germans have only issued €38bn, against €85bn, but €20bn of the €85bn came from two German banks that are now 100% government owned and, on the other hand, Germany’s banks have experienced a strong input in deposits amounting up to €46bn since earlier this year to July.
Finally, a reminder about the remainder:
“In the remainder of the year, the European banks should issue €104bn of which €66bn will be unsecured, but for 2012 it will be €477bn, of which €325bn will be unsecured. If the banks couldn’t do so, they will then have to take the deleverage option.”