(eToro Blog) While the ECB remains the primary lifeline for cash-strapped banks, the deficiency of funding from traditional inter-bank lending has compelled many of the Eurozone’s financial institutions to find alternative funding sources. It has been reported that many of the Eurozone’s largest cash-flush companies, foregoing the traditional bank-deposit route, are instead offering their bankers access to their cash through secured private loans. These loans, known as repo deals, have typically only accounted for about 2-5% of all lending, but in the past year, this specialized market has grown to nearly 25%.
According to a third party expediter of these repo transactions, which oversees the perfection of the collateral offered, the transaction works when one party buys the other’s collateral, then sells it back later at a discount. One survey which tracks such transactions estimated that the value of the European repo market was nearly €6.2 trillion for the first six months of 2011, with European banks a party to the majority of all transactions.
While the corporations are not legally required to admit their involvement in a repo deal, pharmaceutical giants such as Johnson & Johnson and Pfizer are believed to be among those firms which participate, as is French carmaker Peugeot. However, global bank regulators – recalling how closed-door deals were partly to blame for the financial crisis of 2008 – have expressed some concerns about the repo deals, questioning their transparency. However, it could be reasonably argued that the Eurozone’s banks have little choice and few options in the matter.
The Eurozone’s equity markets are all higher in subdued trading, absent of any key data or meetings. The CAC-40 is up nearly 2%, while the DAX is higher by 2.34%. The Euro is also moving higher against the U.S. Dollar, trading at 1.2799. On the eToro trading platform, sentiment for the EUR/USD pair is primarily bearish. Quite a few of the guru traders, including Moksel1972 , babczyk and, of course, NMarijus, remain Euro bulls with several open longs for each of them.
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