* Money markets tackle unchartered waters
* Search for yield as more rates turn negative
* Spain, Italy benefit
By Kirsten Donovan
LONDON, July 13 (Reuters) - The implementation of the European Central Bank's zero percent deposit rate this week has pushed money markets into uncharted territory, forcing many to accept negative returns while seemingly doing little to spur bank lending.
T-bill yields and repo rates are below zero for the euro zone's more-trusted "core" countries and they are falling even for Spain and Italy - despite the euro zone debt crisis appearing no closer to being resolved. Bank-to-bank Euribor lending rates are in freefall.
The ECB last week cut its main refinancing rate to 0.75 percent and its overnight deposit rate - which is paid to banks that park cash in the central bank's deposit account - to zero.
The changes came into force with the start of the new maintenance period on Wednesday but JPMorgan Chase & Co, BlackRock Inc, which is the world's largest money manager, and Goldman Sachs Group Inc had already restricted investor access to European money market funds .
Commerzbank strategist Christoph Rieger described the move to zero or negative rates as "a small step for the ECB but a giant leap for money markets".
"While some investors will likely still be willing to pay a price for safe investments, others will either be keen to exit the euro or should grudgingly revise their credit and duration limits... in an attempt to preserve the nominal value of their investments," he said in a note.
While banks are now not making any cash from the ECB, analysts are sceptical that they will increase lending to the wider economy in response. But there is some suggestion that banks may be seeking even modest returns by buying more sovereign debt - which could potentially ease euro zone policymakers' headaches somewhat on that front.
Tradeweb quotes one-month T-bill yields for Germany, France, Holland and Belgium at close to zero or below, while Spanish yields have fallen to 0.90 percent from around 1.5 percent ahead of the ECB meeting.
Similarly, secured lending rates in the repo market - where banks commonly use government bonds as collateral to raise funding - have collapsed.
General collateral repo rates, which are paid to borrow funds against a basket of government bonds, are negative for the core countries and falling in Spain and particularly Italy. An Italian bond auction on Friday saw good demand despite a ratings cut earlier in the day.
"Italy appears to have been a major beneficiary of the search for yield," said ICAP economist Don Smith, referring to the repo market.
"Bid interest in this market has surged in the last two days and repo rates have correspondingly dropped...(jibing) with the previous rising trend set against a backdrop of elevated lending concerns."
NO INCENTIVE
With no incentive for banks to deposit money at the ECB overnight, cash is being hoarded in institutions' current accounts, central bank data showed this week.
While it is impossible to tell how much money may be being used to buy shorter-dated government bonds from the figures, there is only anecdotal evidence from market players.
However, Smith says reports from Brokertec's euro government bond platform suggest a "scramble" for short-dated Austrian, Belgian, French and Dutch debt.
But without cash filtering through to the broader economy, the ECB may be pressed into cutting interest rates further, adding to the pressure on yields.
Klaas Knot, one of the central bank's Governing Council members on Thursday signalled ECB policymakers could act again, holding out the possibility that the deposit rate could be cut below zero - something the Danish central bank did last week .
"Because the amount of cash at the ECB hasn't really reduced, the market is left to speculate that sentiment hasn't changed and maybe the ECB should do something about it. That's what the market is weighing up for the moment," said Credit Agricole rate strategist Peter Chatwell.
British avalanche victim was raising money for hospice - Daily Telegraph
"We are devastated to hear of Steve's death and the deaths of John Barber and Roger Payne, as well as of the other victims. Our thoughts and prayers are with their families and friends today."
Mr Barber had a 10-year-old daughter, Francesca, while Mr Taylor, 48, had an eight-year-old daughter Louise and a 10-year-old daughter Emma.
Their children went to the village school, Poppleton Ousebank, and Mr Barber's parents are understood to have run the Post Office before moving to York.
Estelle O'Hara, head teacher, wrote to parents yesterday informing them of the accident. She offered her sympathies to Mr Barber's partner Donna Rodgers and Mr Taylor's wife Karine.
She said: "It is with great sadness that I write to inform you that two of the climbers killed in yesterday's avalanche in the French Alps were parents from Poppleton Ousebank – Steve Barber, father of Frankie in Year 5 and John Taylor, father of Emma in Year 5 and Louise in Year 3.
"Our thoughts and prayers go out to both Donna Rogers and Karine Taylor who have both lost their lifelong partners.
"Children have been informed and school staff have been supporting them throughout the day, providing a caring shoulder and answering any questions that children may have.
"We would ask that people respect the families' privacy at this sad time. We understand that the climb was to raise money for St Leonard's Hospice and so we will be collecting on their behalf."
Before he left for France, Mr Barber, 47, had raised £340 for the charity through his JustGiving website. The page was set up by his partner, who posted a photograph of him practising for the climb.
In messages left by donors, friends Mike and Helen Vest wrote: "Good Luck Steve, the Lake District will seem a bit tame after this! See you for a beer or three on your return."
Carole Harland wrote: "Take great care getting up there and getting back down – there must be a much easier way – good luck Steve."
Members of York Council paid tribute to the men. Leader of the council's Conservative group, councillor Ian Gillies, who represents Upper Poppleton, said: "Devastated doesn't cover it, really.
"I'm sure the people in the village and the wider community will provide the support the families need, not only now but for weeks to come."
Councillor James Alexander, Labour leader of City of York Council, added: "I am deeply saddened by the news that two Poppleton residents lost their lives in Thursday's avalanche in Chamonix, France.
"I would like to offer their families and friends my condolences and offer any support and assistance we can provide at this difficult time."
The men were believed to have been climbing with Roger Payne, former president of the Association of British Mountain Guides, who was also killed.
Mr Payne’s family paid tribute to a man who they said “died doing what he loved”.
His brother Keith, 66, told The Daily Telegraph that his brother would never have taken any risks on the mountain.
Speaking from the home of their 92 year-old mother, Nellie, in Hammersmith, west London, he said: “Roger … would never take any chances, he was true professional.
"All I know is there was an avalanche and it was not expected, a freak of nature. Our mother ... lives on her own.
"Every time there is an accident on a mountain she thinks of Roger – she is devastated.”
He added: “We will miss him greatly. He died doing what he loved doing. He will never be forgotten.”
Ed Douglas, a friend and fellow member of the British Mountaineering Council, wrote a moving tribute about Roger Payne, posted on the BMC's website.
Aviation finance spreads its wings - International Financing Review
Bonds/securitisation
Innovation on show as issuers wrestle with tough market conditions
Aviation finance is driving innovation in the capital markets, with the first aircraft Pfandbrief and first airport landing-slot securitisation each hitting the market last week. Both deals – plus a transaction from Emirates Airline the previous week, which was the first non-US aircraft lease securitisation since the onset of the financial crisis – represent a response to tougher conditions for aviation finance.
Under the new capital rules contained in Basel III, the kind of long-term and non-investment-grade debt that is typical in traditional aircraft lending attracts punitive capital charges. As a result, many European banks are pulling back from the market, with French banks in particular withdrawing from the mainly US dollar-denominated business.
To make matters worse, export credit agencies are expected to double their guarantee charges from the end of the year, in effect making the use of unguaranteed leases all the more important.
Meanwhile, acquisitive airlines have to be inventive in funding their acquisitions. Aircraft are the main capital goods in the industry, and the best collateral for secured finance. But most are owned by finance companies rather than airlines, leaving carriers with few unencumbered assets to raise debt themselves.
One avenue to address these issues is the use of Pfandbriefe backed by aircraft loans and/or leases. This was the route taken by German lender NORD/LB, which last week sold a €500m Pfandbrief deal backed by €950m of aircraft leases.
Despite the huge overcollateralisation, the issuer did not gain much of a ratings boost using the structure – the deal was provisionally rated at A2 by Moody’s, just one notch higher than the bank’s senior unsecured rating – but the five-year deal’s 55bp over mid-swaps pricing was roughly 50bp inside where NORD/LB would sell a comparable senior deal.
“If it says Pfandbrief – that means an implicit German guarantee”
A banker away from the deal said that what mattered most was making the deal fit the Pfandbrief legislative framework.
“If it says Pfandbrief – that means an implicit German guarantee,” he said. “The state is not going to want to see any Pfandbrief investor lose money, even on an aircraft deal. The collateral is awkward in lots of respects, but the price is driven by the label, not the quality of the aircraft leases.”
A model to follow?
With highly rated German banks stepping in to pick up some of the slack as other European lenders withdraw from the aviation financing market – Helaba, for instance, has stepped up its aircraft financing activities – many will have watched NORD/LB’s transaction with interest. And now that they have a template from which to work, bankers say as many as five other German borrowers are likely to follow suit.
According to a syndicate banker at a German bank, Deutsche Verkehrsbank is rumoured to be seeking to issue an aircraft Pfandbrief before the year is out. HSH Bank and Commerzbank could also attempt offerings.
“While there are issuers who will see this funding as a surrogate for senior funding, the additional collateral and the Pfandbrief name will make this a much better prospect for investors than senior paper,” he said.
However, not everyone sees it that way. NORD/LB attracted €1.1bn of orders for the no-grow deal, but despite this interest and the deal printing around 50bp back of where NORD/LB could have sold a mortgage Pfandbrief, plenty of buyers prefer to look at deals backed by vanilla mortgages or public-sector collateral.
“Issuers with a solid unsecured funding business will be unlikely to look at this model,” said a senior funding official in a German bank. “It’s very interesting to see that certain investors crossed the line and were happy to see aircraft Pfandbrief as a traditional covered bond, but as long as senior debt is available this will remain a niche product.”
Not quite property
The other notable innovation last week came when British Airways (now part of International Airlines Group) sold a US$250m due 2016 bond backed by landing slots at Heathrow airport.
The Bealine securitisation deal, which pays a coupon of 7.25%, will finance the £172.5m acquisition of bmi, agreed late in 2011.
When IAG bought bmi from Lufthansa, it acquired only four aircraft (the other 23 in bmi’s fleet were leased), but also 42 daily landing slots at Heathrow, which were also used as security for the acquisition payment instalments. This collateral was therefore naturally available as security for the acquisition debt.
Landing slots function like property – but not quite. They can only be owned by airlines with valid operating licences, can be removed if not used 80% of the time, and are not always counted on corporate balance sheets.
Yet these slots have monetary value, and form the major part of the collateral that pushes the securitisation to an Aa3/BBB (Moody’s/S&P) rating, from IAG’s B2/BB– unsecured rating.
The unique nature of the asset class has dictated the structure that can be used – in effect, the deal is a sale-and-leaseback of the “properties” where BA does its business. But it is structured like a whole business deal referencing a BA subsidiary.
The slots will be operated as a joint venture between BA and its subsidiary, where the subsidiary owns the slots but BA flies the aircraft. BA does not rent or lease the slots, as this is not possible given the nature of slot collateral, but it guarantees to pay the liabilities of the securitisation. To establish the subsidiary as a real, operating airline, rather than simply a holding vehicle, BA is also giving it a route to run (with borrowed BA aircraft and crew).
As the biggest risk to BA’s control over the slots is how regularly they are used, this is the key credit metric apart from BA’s corporate credit. Using slot pairs at Heathrow – an airport operating close to full capacity – is meant to give investors confidence, despite the unusual collateral.
MONEY MARKETS-Fed unlikely to follow ECB rate cut - UBS - Reuters
* US excess reserve rate cut might disrupt money market funds
* European money markets tackle uncharted waters
* Search for yield as more rates turn negative
By Chris Reese and Kirsten Donovan
NEW YORK/LONDON, July 13 (Reuters) - The U.S. Federal Reserve is unlikely to follow the European Central Bank's move to a zero percent deposit rate due in part to fears of disruptions to money market funds, according to UBS strategist Chris Ahrens.
The ECB last week cut its main refinancing rate to 0.75 percent and its overnight deposit rate - which is paid to banks that park cash in the central bank's deposit account - to zero.
U.S. money market fund managers breathed a sigh of relief earlier this week after minutes from the Fed's June policy meeting showed no indications the central bank was considering cutting the interest rate it pays on excess reserves to banks.
Many fund managers believe any cut in the rate, which currently stands at 0.25 percent, would cause disruptions in funding markets, especially money market funds.
"We agree with our economists that the Fed is unlikely to reduce interest on excess reserves (IOR)," Ahrens said. "The Fed discussed this alternative in detail at the September 2011 meeting but was reluctant to exercise this option. Moreover, June 2012 Federal Open Market Committee (FOMC) meetings did not mention IOR, and recent speeches have not included it."
"The Fed's reluctance to cut the rate stems primarily from 'concerns that reducing the IOR rate risked costly disruptions to money markets and to the intermediation of credit'," Ahrens said, quoting from FOMC minutes from Sept. 20-21, 2011.
"Our read is that the central bank worries that reducing IOR would elicit meager gains at the potential cost of eroding the architecture of the financing markets and fracturing the link between the policy rate and various funding rates," Ahrens said.
Meanwhile, implementation of the ECB's zero percent deposit rate this week has pushed money markets into uncharted territory, forcing many to accept negative returns while Seemingly doing little to spur bank lending.
T-bill yields and repo rates are below zero for the euro zone's more-trusted "core" countries and they are falling even for Spain and Italy - despite the euro zone debt crisis appearing no closer to being resolved. Bank-to-bank Euribor lending rates are in free fall.
The changes came into force with the start of the new maintenance period on Wednesday but JPMorgan Chase & Co, BlackRock Inc, which is the world's largest money manager, and Goldman Sachs Group Inc had already restricted investor access to European money market funds .
Commerzbank strategist Christoph Rieger described the move to zero or negative rates as "a small step for the ECB but a giant leap for money markets".
"While some investors will likely still be willing to pay a price for safe investments, others will either be keen to exit the euro or should grudgingly revise their credit and duration limits... in an attempt to preserve the nominal value of their investments," he said in a note.
While banks are now not making any cash from the ECB, analysts are skeptical that they will increase lending to the wider economy in response. But there is some suggestion that banks may be seeking even modest returns by buying more sovereign debt - which could potentially ease euro zone policymakers' headaches somewhat on that front.
Tradeweb quotes one-month T-bill yields for Germany, France, Holland and Belgium at close to zero or below, while Spanish yields have fallen to 0.90 percent from around 1.5 percent ahead of the ECB meeting.
Similarly, secured lending rates in the repo market - where banks commonly use government bonds as collateral to raise funding - have collapsed.
General collateral repo rates, which are paid to borrow funds against a basket of government bonds, are negative for the core countries and falling in Spain and particularly Italy. An Italian bond auction on Friday saw good demand despite a ratings cut earlier in the day.
"Italy appears to have been a major beneficiary of the search for yield," said ICAP economist Don Smith, referring to the repo market.
"Bid interest in this market has surged in the last two days and repo rates have correspondingly dropped...(jibing) with the previous rising trend set against a backdrop of elevated lending concerns."
With no incentive for banks to deposit money at the ECB overnight, cash is being hoarded in institutions' current accounts, central bank data showed this week.
While it is impossible to tell how much money may be being used to buy shorter-dated government bonds from the figures, there is only anecdotal evidence from market players.
However, Smith says reports from Brokertec's euro government bond platform suggest a "scramble" for short-dated Austrian, Belgian, French and Dutch debt.
Cole Taylor Bank Launches Equipment Finance Division - Yahoo Finance
CHICAGO, July 13, 2012 /PRNewswire/ -- Taylor Capital Group, Inc. (the "Company") (TAYC) announced today that Cole Taylor Bank (the "Bank") has launched a new equipment finance division led by Edward A. Dahlka, Jr., a nationally recognized industry leader and former President of LaSalle National Leasing Corporation with more than 40 years of leasing and equipment finance experience.
Cole Taylor Equipment Finance is now the bank's third national line of business, along with Cole Taylor Mortgage and Cole Taylor Business Capital. Initially joining Mr. Dahlka at Cole Taylor Equipment Finance are industry veterans Steven Williams, Peter J. Steger, Joseph A. Maddox, and John A. Hurt, all of who worked with Dahlka at LaSalle National Leasing. The business offers a full range of equipment finance options and specializes in originating and syndicating commercial equipment leases for U.S. companies. The syndication function offers both buy and sell opportunities to the investor community.
"I am very pleased to welcome Ed and his team to Cole Taylor," said Mark A. Hoppe, President and Chief Executive Officer of the Bank. "I've known Ed for many years, and the highly-experienced team has an established network in the marketplace. I'm confident they will build a successful and sustainable line of business for the bank. We expect that Cole Taylor Equipment Finance will become a strong source of balance sheet growth and fee revenue for the bank and further contribute to the diversification of our earnings."
Ed Dahlka, President of Cole Taylor Equipment Finance, added, "I'm delighted to have joined Cole Taylor Bank. My team shares with Cole Taylor a dedication to customer service and a commitment to trust and transparency. Our team averages more than 25 years in the leasing business, and we're looking forward to bringing our experience and expertise to this outstanding organization. Our customers and market participants will see that the deals we structure will be exactly what we deliver."
Dahlka reports to Mark Hoppe and the business is based near Baltimore in Towson, Maryland.
About Taylor Capital Group, Inc. (TAYC)
Taylor Capital Group, Inc. is the $4.7 billion bank holding company of Cole Taylor Bank, a commercial bank headquartered in Chicago. Cole Taylor specializes in serving the banking needs of closely held businesses and the people who own and manage them. Through its divisions Cole Taylor Business Capital and Cole Taylor Mortgage, the Bank also provides asset based lending and residential mortgage loan products through a growing network of offices throughout the United States. Cole Taylor is a member of the FDIC and is an Equal Housing Lender. Visit www.coletaylor.com/equipment-finance.
Forward-looking statements: Certain statements in this press release constitute forward-looking statements. These forward-looking statements reflect our current expectation about certain prospects and opportunities, and anticipated or expected events. We have tried to identify these forward-looking statements by using words such as "may," "plan," "should," "will," "expect," "believe," "intend," "could" and "estimate" and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our performance and actual events in 2012 and beyond to differ materially from expectations expressed in, or implied by, these forward-looking statements.
Finance East has money to lend - EDP 24
Friday, July 13, 2012
5:32 PM
This week Finance East encouraged businesses to apply for a loan via the government’s Regional Growth Loan Scheme (RGLS) which it said focuses more on future potential than past performance.
It is aimed at companies with turnover of £500,000 or more and growth forecasts of 20pc to 50pc per annum.
Stuart Ager, senior fund manager at Finance East said: “If a company’s past performance is less than resoundingly positive or they are experiencing cash flow problems, most funders will walk the other way. “However, when assessing companies for a Regional Growth Loan, we will scrutinise their growth strategy for the future rather than raking over the past. If we have confidence in the product, sector and team and the company has a robust plan for the future, we are likely to say ‘yes’ where others have said ‘no’.”
A loan can be used for capital expenditure, sales and marketing, personnel recruitment and/or project expenses.
Stuart Ager said: “When clients come to us they have sometimes been offered a percentage of their total requirement and then need to find the rest. Our openness to funding 100% leaves the company free to focus on its growth strategy rather than having to divert time to chase match funding.”
Regulated financing market for start-ups launched - Daily Telegraph
Users, who can choose to spread investments of up to £150,000 across various pre-revenue businesses, are more likely to be professionals who haven’t previously backed small businesses rather than “unsophisticated” investors, he said.
Mr Lynn said: “If you’re 85 and worried about losing your house, we don’t want you on the site.” Other than making sure pitches for funding are “fair, clear and not misleading”, companies are not screened.
“We’re just the marketplace because we don’t think our judgement is as good as the crowd’s,” he added. “We want to raise money for companies that might not meet our own investment goals. Maybe you want to start a pub and your friends from the village want to invest.”
Seedrs charges companies 7.5pc of funds raised and investors are subject to a fee of 7.5pc of all returns. Mr Lynn is hoping Seedrs, which currently has 15 companies looking for capital, will widen access to the Government’s Seed Enterprise Investment Scheme, which offers generous tax relief to backers of new businesses.
UK start-ups have led the nascent “peer-to-peer” online finance market, with platforms such as Zopa allowing consumers to lend to one another, Funding Circle facilitating savers to lend to small firms and Crowdcube kicking off equity 'crowd-funding' of start-ups.
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