Spanish Bonds Attract Global Banks
September 2nd, 2010
International banks used a record amount of Spanish government bonds as collateral to borrow money in the markets last week, sparking hopes that credit problems in the troubled eurozone are easing.
The use of Spanish government bonds shows that confidence in Madrid has risen in recent weeks as fears recede that the country’s sluggish economy will trigger defaults on bonds and loans. Short-term loans, backed by Spanish bonds in repurchase agreements – the key area for bank funding in Europe – had hit €160bn by Wednesday last week, according to Icap’s BrokerTec, a key platform for raising money in Europe.
Many banks using Spanish bonds as collateral are domestic institutions, which had been struggling to access finance.
The Spanish banks have been heavily reliant on loans from the European Central Bank because of fears about the stability of the finance sector.
It is also a boost for the eurozone, as worries that defaults in a big economy such as Spain, the fourth largest in the 16-bloc single currency, could undermine the euro. Don Smith, economist at Icap, said: “This is a very positive sign for Spain as it lessens their reliance on the European Central Bank for loans.
“It is also an important step in the right direction for the eurozone.”
A big reason behind the increasing willingness by banks to accept Spanish bonds as collateral is due to the backing of their transactions by LCH.Clearnet and Eurex, central counterparty facilities that cover potential losses in loan defaults.
LCH.Clearnet, the London-based clearer, launched clearing services for Spanish government bonds and repos on August 9.
Caja Madrid, a large unlisted savings bank, became the first Spanish institution to join Eurex Repo, an electronic market attached to Eurex Clearing, which is controlled by Deutsche Börse, last month.
Santander, the biggest bank in the eurozone by market capitalisation, has long been a member of LCH.Clearnet through its UK subsidiary Cater Allen, the private bank.
However, Spanish bankers say capital is still difficult to raise. “There is a little more liquidity now for Spanish banks, but it’s still very selective, short term and focused on the big names,” said a senior Spanish banker, who asked not to be named.
“That’s why banks and cajas [local savings banks] are trying to find new markets.”
The latest figures show that Spanish banks had relied on the ECB for lending, borrowing a record €140bn in July, according to Barclays Capital.
Analysts also caution that improving sentiment in Spain is only one factor, especially as the US and many of the eurozone economies are still under a cloud.
Story from Financial Times
Related Posts
- Spanish Bonds Attract Global Investors
- Spanish Banks in Drive to Revive Repo Financing
- Investors Urged to Avoid Spanish Bonds
