FT: Draghi pushes for ECB to ac­cept Cyprus and Greek ‘junk’ loan bun­dles

Financial Mirror (Cyprus) - - FRONT PAGE -

Mario Draghi is to push the Euro­pean Cen­tral Bank to buy bun­dles of Cypriot and Greek bank loans with “junk” rat­ings, in a move that is set to ex­ac­er­bate ten­sions be­tween Ger­many and the bank, ac­cord­ing to the

ECB pres­i­dent Draghi will this week un­veil de­tails of a plan to buy hun­dreds of bil­lions of euros’ worth of pri­vate-sec­tor as­sets – the cen­tral bank’s lat­est at­tempt to save the eu­ro­zone from eco­nomic stag­na­tion, the news­pa­per re­ported.

Mean­while, the euro – which has fallen some 9% against the dol­lar since the start of May – dipped be­low $1.26 on Tues­day for the first time since Septem­ber 2012.

The ECB’s ex­ec­u­tive board will pro­pose this week that ex­ist­ing re­quire­ments on the qual­ity of as­sets ac­cepted by the bank are re­laxed to al­low the eu­ro­zone’s mon­e­tary guardian to buy the safer slices of Greek and Cypriot as­set backed se­cu­ri­ties, or ABS, say peo­ple fa­mil­iar with the mat­ter.

Draghi’s pro­posal is de­signed to make the pro­gramme of buy­ing ABS, which are bun­dles of loans sliced and diced into pack­ages, as in­clu­sive as pos­si­ble. If it is backed by the majority of mem­bers of the ECB’s gov­ern­ing coun­cil, the cen­tral bank would be able to buy in­stru­ments from banks of all 18 eu­ro­zone mem­ber states.

How­ever, the idea is likely to face staunch op­po­si­tion in Ger­many, strain­ing al­ready tense re­la­tions be­tween the ECB and of­fi­cials in the eu­ro­zone’s largest econ­omy, the FT re­port said.

Bun­des­bank pres­i­dent Jens Wei­d­mann, who also sits on the ECB’s pol­icy mak­ing gov­ern­ing coun­cil, has al­ready ob­jected to the plan to buy ABS, which he says leaves the cen­tral bank’s bal­ance sheet too ex­posed to risks.

Wolf­gang Schäu­ble, Ger­many’s fi­nance min­is­ter, has also voiced his op­po­si­tion, say­ing pur­chases would heighten con­cerns about po­ten­tial con­flicts of in­ter­est be­tween the ECB’s role as mon­e­tary pol­icy maker and bank su­per­vi­sor.

While the safer slices – or se­nior tranches – of Greek and Cypriot ABS only make up a tiny pro­por­tion of Europe’s se­cu­ri­ti­sa­tion mar­ket, it would free up bil­lions in liq­uid­ity for banks in two of the eu­ro­zone’s weak­est economies, and po­ten­tially boost lend­ing to cred­it­starved smaller busi­nesses in the pe­riph­ery.

Re­lax­ing the rules would also sig­nal the cen­tral bank’s in­tent to rid the re­gion of the threat posed by weak growth and low in­fla­tion, which at 0.3% is now at a five-year low.

As the as­sets cre­ated in Greece and Cyprus are po­ten­tially riskier than those from banks else­where in the eu­ro­zone, the ECB would com­pen­sate by pur­chas­ing smaller proportions of th­ese se­cu­ri­ti­sa­tions, ac­cord­ing to a Eurosys­tem of­fi­cial.

At present, the ECB only ac­cepts ABS as col­lat­eral in ex­change for its cheap loans if they hold a min­i­mum rat­ing of at least triple B, the low­est in­vest­ment-grade rat­ing.

Be­cause the rat­ings on se­nior tranches are capped by the sov­er­eign rat­ing of the coun­try where the bank is based, if those rules were to ap­ply to the ECB’s buy­ing plan, the cen­tral bank could not ac­cept any se­cu­ri­ti­sa­tions of Greek or Cypriot is­suers.

Stan­dard & Poor’s rates Greece and Cyprus as sin­gle B sov­er­eigns – a sub-in­vest­ment-grade rat­ing. Fitch rates Greece as sin­gle B, and Cyprus as sin­gle B-mi­nus. Moody’s rates Greece Caa1 and Cyprus as Caa3.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.