So, let’s see briefly what 2014 may hold, which is just around the corner, just to understand iceberg against which we could beat.
The non-performing loans are at record levels.And according to the quality indicators of credit drawn up last June by Bank of Italy, published in Report on Financial Stability of last November, significantly increase the probability of entry-in the next twelve-months of non-performing loans, compared to the previous twelve months, ie by June 2012. So, assuming that the sufferings grow at the same pace with which they are grown in the last twelve months (but there is no reason to believe that performance can not be even worse), at the end of 2014, non-performing loans could exceed 180 billion EUR. An astronomical amount that would result in negative effects on many institutions. Effects that could hardly be managed without bearing additional capital; admitted that, in the meantime, the explosion of the suffering does skip some banks.
So, the problem is also the capital. Who will put their wallets? The shareholders of the banks?Appears to be very difficult. And provided they have the funds to do so, it is not said that they do so in the absence of clear and robust signs of recovery, but these are not on the horizon.
So it is reasonable to expect that banks, also encouraged by the recent tax relief contingent arising from the conversion into equity of hybrid bonds (WE HAVE TALKED HERE ), Emit this kind of bond with the intent to improve the quality of assets, without thereby dilute the positions of shareholders.
It ‘clear that most of the money obtained from the LTRO auctions have been invested in three-year bonds: ie, securities with a maturity compatible with the three-year refinancing operations. Thus, at maturity, to have the funding necessary to return to the ECB, it is sufficient not to renew the bonds.And if anything is missing (!?), You can always sell BTP with longer maturities. But this, probably, would lead to tensions on the spread by growing the cost of debt service for the bonds that the state will again place.
So, in essence, the state will place new titles so that banks can return the money to the ECB. And who will buy newly issued securities? It ‘clear that, in order not to break the bank, the ECB will have to invent some other form of funding to the banks so that they can buy newly issued securities and at the same time, get a refund for those expiring.
But at this point intervenes another matter. If the banks are financed by the ECB and, instead of financing the real economy, will continue to finance purchases of government bonds, it is clear that the credit crunch will continue aggravating the economic cycle, already very bad for her, and bringing out further suffering in the financial statements bank, already grappling with obvious difficulty.
In this regard, it seems that the ECB, based on the experience gained with the British Funding for lending scheme (FLS), are studying their mechanisms of refinancing the banking system such as to encourage the re-use of these resources for the benefit of their business financing, including through the use of incentive mechanisms, or persuasive. But that Draghi will start flinging bills from a helicopter in style Bernanke, is totally unrealistic given the constraints the ECB’s statutory and notes German positions.
Meanwhile, just the Germans, as part of the Asset Quality Review that, in 2014, the ECB will be involved in the evaluation of the financial statements of approximately 130 European banks, would like to state that the securities are present in bank assets, had a weighted different risk compared to the risk-free current, ie a weighting that incorporated issuer risk. If you were to prevail the German line, banks should continue to operate in provisions to cover risks arising from bonds, exactly as it happens for loans to households and businesses. This would produce further contraction of credit to be granted to firms and households, aggravating the economic cycle. Alternatively, you could always download government bonds, with potentially explosive on the sovereign rating and, consequently, the yield on government bonds.
It ‘also clear that if it were to pass the German position, this could also encourage the upsurge of tensions in sovereign bonds in the Mediterranean. Just because it would provide an additional tool to the market of country risk assessment and, consequently, a greater perception that the euro area is a monetary area of all non-homogeneous.Circumstance, this, that in some ways negate all the propaganda they expend most of the European nomenclature in these years of crisis.
Source: Winners & Losers