Spanish Banks In Intend To Turn Repo -00-7227

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Spanish banks and savings banks, shaken by the recent freeze they faced in the government bond repo market, are increasingly seeking membership of global marketing networks and clearing houses to widen their choices for raising short-term liquidity.

Several large banks, including Caja Madrid and BBVA, are applying to be members of LCH. Clearnet, the London based bond and repos clearer that launched operations for Spanish government bonds and repos on Monday in response to rising demand, according to humans familiar with the apps.

Santander, the greatest bank in the eurozone by market capitalisation, has long been a fellow member of LCH. Clearnet through its UK subsidiary Cater Allen, the private bank.

Caja Madrid, a big unlisted savings bank, in July became the original Spanish institution to join Eurex Repo, an electronic market attached to Eurex Clearing, which is controlled by Deutsche Börse. Other major Spanish lenders are expected to follow suit.

Repo dealings - which concede financial institutions to offer or incur short-term liquidity using government bond holdings as security - were for ...
... Spanish banks largely carried out within Spain before the financial crisis erupted in 2008.

In recent months even these repo deals became closely out of the question as Spanish lenders found themselves starved of wholesale liquidity amidst predictions of a Spanish sovereign debt crisis following the bailout of Greece.

The problem really was that the Spanish repo market was apart from the cross-border market. It was a protected market, said Richard Comotto, a secured finance expert who is senior visiting fellow at the ICMA Centre of Reading University. ICMA is the International Capital Markets Association.
Spanish banks are now flooding to join LCH and Eurex because in Europe now humans really only want to cope with you through a CCP [central counterparty clearing system].

Both lenders and borrowers may benefit from the anonymity and settlement guarantee provided by a clearing house in Spain. Clearing houses reduce counterparty peril by standing amidst consumers and vendors in a dealing, stepping in in case of a default by either party.

Spain's absence from global clearing strategies has been an anomaly given the size of the Spanish debt market and the fact that LCH. Clearnet has already been dealing with 10 other European government bond markets.
Spanish bankers and analysts said that Spain was late to join the trend towards electronic marketing using CCPs because the country's settlement system was apart from those used by its European neighbours.

But banks said that they were already seeing benefits from their new involvement in the global clearing houses, helped by a frequent easing of the antecedently frozen wholesale finance markets. The repo deals are normally used to raise cash for amidst a week and three months.

Jaime Comunión, treasury head at Caja Madrid, said of the bank's new Eurex membership that Caja Madrid had hoped to raise €3bn in a month but had managed €5bn. We are finding new ways of wholesale financing outside Spain, he said. We are normalising the situation of the repo industry in Europe.

Mr Comunión, who says Caja Madrid's Eurex membership will concede it act as an intermediary for other Spanish institutions, said prices were already improving for Spanish banks seeking liquidity, with the interest rate on two-week repos falling sharply in the past few weeks and expected to fall farther.

Story from Financial Times

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