-- Banks are leading the rebound in European stocks Monday, on rising hopes that the European Central Bank will take action to support the flagging euro-zone economy.
Expectations are rising that the ECB will revive one of its crisis-era tools – so-called Targeted Long-Term Refinancing Operations, or TLTROs – to allow banks to lock in ultra-low funding costs that will help keep the business of lending – just about – profitable in an environment of near-zero interest rates. The ECB has over 700 billion euros in such four-year loans outstanding right now, but hasn't issued a new one in nearly two years.
At 04:45 AM ET (0945 GMT), the Euro STOXX Banks index was up 1.6%, while the benchmark Euro Stoxx 50 was up 1.1% at 3,168.45.
European Central Bank board member Luis de Guindos said Monday that the ECB hadn’t yet discussed when or how it would conduct any new operations, but did say in a speech that a “high degree of continuing monetary support is essential,” which strongly suggests that the central bank won’t let the existing TLTROs expire without some kind of replacement. The biggest outstanding TLTRO, at 379 billion euros, is due to expire in June 2020. Bloomberg reported de Guindos as saying that the TLTRO program would be analysed “in the coming months.”
As it was Spanish and Italian banks that made the most use of TLTRO funds during the crisis, they’re also the ones most vulnerable to losing the benefits of them. Spanish and Italian banks were performing best this morning, with Unicredit (MI:CRDI), Intesa Sanpaolo SpA (MI:ISP) and BBVA (MC:BBVA) all among the top performers.
Northern European banks, which don’t need the ECB’s safety net as much, were also higher. In the past, they’ve tended to suffer more from the side-effect of TLTROs – a glut of liquidity that caps lending margins and profits. But Germany’s Commerzbank (DE:CBKG) and Deutsche Bank (DE:DBKGn) were both up, as was BNP Paribas (PA:BNPP), possibly a reflection of chatter that the ECB will devote more attention to ensuring that a fresh round of long-term support doesn't also create a long-term flatlining of euro interest rates.