Defusing TLTRO time bomb requires prudence, not hope

From June 2019 a large chunk of debt borrowed by banks from the EU periphery under the European Central Bank’s second Targeted Longer-Term Refinancing Operations (TLTRO II) will no longer be considered stable funding. Banks should refinance that debt in the market instead of hoping for another ECB handout.

  • By Bill Thornhill
  • 15 Nov 2018
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Liberbank showed its mettle this week by announcing plans for its first covered bond. Even though the double-B rated issuer is likely to pay a considerably higher spread than it would under TLTRO II, the idea makes sense.

Relying on the continuing support of the ECB is not a prudent long-term strategy, but given the lack of market-based funding from issuers in these regions, it’s a bailout that many banks are still seemingly relying on.

Despite a sharp 30% rise in covered bond primary volumes this year over last, periphery banks have been notable for their absence. 

That is a situation that looks increasingly untenable. 

From June next year the €399bn that was borrowed under the first tranche of TLTRO II will no longer qualify for the net stable funding ratio.

Issuers, and many syndicate bankers, blithely believe the ECB will step in and offer another round of cheap financing. 

That may turn out to be so, but the ECB hardly wants to incentivise issuers to prepare for another cheap handout. 

The ECB will play tough. That means it will only announce something when absolutely necessary and at levels that could well stigmatise users.

Net buying under its Covered Bond Purchase Programme falls to zero from January, and if a predicted €70bn increase in periphery covered bond volumes over the next two years materialises, spreads must widen.

Liberbank should be rewarded for moving early, but its peers seem not to be paying attention.

  • By Bill Thornhill
  • 15 Nov 2018

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 345,651.05 1349 8.09%
2 JPMorgan 341,748.87 1469 8.00%
3 Bank of America Merrill Lynch 306,869.45 1064 7.18%
4 Barclays 258,170.48 974 6.04%
5 Goldman Sachs 227,691.73 773 5.33%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 48,305.28 204 6.53%
2 JPMorgan 46,311.15 105 6.26%
3 UniCredit 40,488.91 181 5.48%
4 SG Corporate & Investment Banking 38,348.83 146 5.19%
5 Credit Agricole CIB 37,171.96 185 5.03%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 14,514.87 63 9.19%
2 Goldman Sachs 13,469.15 66 8.53%
3 Citi 9,971.36 58 6.32%
4 Morgan Stanley 8,572.10 54 5.43%
5 UBS 8,414.70 37 5.33%