Bank of America's 2 Cents on EU Summit
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In a research note, analysts at Bank of America weighed in on the EU summit. Overall, they called it a net positive, though it is unlikely to provide long term support for the markets, especially if the details of the plan "weaken the efficacy" of the measures.
A major positive from the summit is a plan to allow EFSF/ESM purchases on the secondary debt market in Italy and Spain. At present, funds are limited to $150 billion, so there is a limit to how effective this can be.
Italian and Spanish Banks should also benefit from direct recapitalization by the ESM, although the "single supervisor" mentioned today in news reports isn't likely be created until next year.
Another positive for Spanish banks is that there is no seniority attached to the ESM in case they purchase sovereign bonds and provide loans for banks.
But the news out of Europe isn't all positive, say analysts at Bank of America. So far there is no discussion on a banking union, a fiscal union, regulation, or so-called Euro-bonds. There are also limited funds remaining in the EFSF/ESM and ESM deployment could be delayed since only 7 countries have ratified it. Clarity on supervision of the ESM also needs to be established.
A major positive from the summit is a plan to allow EFSF/ESM purchases on the secondary debt market in Italy and Spain. At present, funds are limited to $150 billion, so there is a limit to how effective this can be.
Italian and Spanish Banks should also benefit from direct recapitalization by the ESM, although the "single supervisor" mentioned today in news reports isn't likely be created until next year.
Another positive for Spanish banks is that there is no seniority attached to the ESM in case they purchase sovereign bonds and provide loans for banks.
But the news out of Europe isn't all positive, say analysts at Bank of America. So far there is no discussion on a banking union, a fiscal union, regulation, or so-called Euro-bonds. There are also limited funds remaining in the EFSF/ESM and ESM deployment could be delayed since only 7 countries have ratified it. Clarity on supervision of the ESM also needs to be established.
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