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BBVA takes ECB cash to cover maturing debt

Source: Reuters - Thu 22th Dec 2011
BBVA takes ECB cash to cover maturing debt

Spanish bank BBVA took around 11 billion euros in the ECB's offer of cheap long-term cash, in order to cover 2012 debt maturities, a market source said on Thursday.

Spain's second-biggest bank will not buy sovereign debt with the proceeds, the source said, due to the European banking regulator forcing banks to mark down their sovereign holdings.

BBVA will not do the 'carry trade', whereby banks borrow the ECB money at 1 percent and buy government bonds with the same maturities from euro zone sovereigns, exploiting the difference in yields which could amount to more than 400 basis points.

"BBVA has used the auction to cover its 2012 debt maturities, and not for carry-trade operations," the source said.

"The bank is not going to buy sovereign debt when these kind of holdings have been the most penalised in the recent EBA exercises."

A BBVA spokesman declined to comment on the matter.

A spokesman at Santander, the euro zone's biggest bank, also declined to comment on the ECB auction.

Over 500 European banks took part in the auction, borrowing 490 billion euros.

Nearly all Spanish banks had participated in the 3-year ECB auction and altogether took up between 50 billion and 100 billion euros, a source from a Spanish bank said.

Spain's banks face a massive spike in their funding needs next year with around 130 billion euros of debt coming to maturity. BBVA has 11 billion euros of debt maturing in 2012.

"A large part of the capital has been taken to cover short-term maturities, regardless of the size of the bank," said Jose Carlos Diez, chief economist at Intermoney.

The huge Spanish take-up indicates some must be taking part in the carry trade to help improve their 2012 results with the proceeds, he added.

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