Halister News

(Bloomberg) -- While ECB looks set to ease further at the March meeting, it may require coordination among major central banks or regulators to provide comfort to investors about the future of the European banking sector, Exane BNP Paribas analysts, including Astrid Schilo, write in client note.

• Low yields and regulation are the biggest factors weighing on banks and ECB may struggle to do much to address those; further action may be unhelpful
  • Buying sovereign bonds less of a benefit for banks as holdings are smaller, sovereign yields aren’t as high as in the past and the regulator talking about risk weighting changes means there will be incentives to hold fewer govvies in the future
• Expect ECB to:
  • Increase monthly buying by EU10b at March meeting and may lift the purchase ceiling for bonds which pre-date collective action clauses
  • Cut deposit rate by 10bps to -0.4%, possibly more with a tiered system
  • Soften TLTRO conditions to improve eligibility among banks currently locked out because of loan level hurdles, extend maturity and offer more tenders
• While buying CLOs is possible, any volumes would be small; unlikely to buy senior credit given credit yields remain under control
  • Could though announce it’s ’ready’ to purchase credit if certain other conditions are met, in line with the 2012 OMT announcement; a step in that direction would be supportive near term