21 February 2013

FT: ECB unveils €1.1 billion profit on crisis bonds

The European Central Bank said it earned €1.1 billion in interest income from its share of a €208 billion portfolio of sovereign debt issued by Italy, Greece, Spain, Portugal and Ireland. (Includes link to ECB press release/annual accounts.)

The bonds were bought under the now-defunct Securities Markets Programme, which ran from mid-2010 and was designed to calm financial market fears of a eurozone break-up.

The ECB published a previously confidential breakdown of the portfolio – revealing, just days before Italy’s general election, that Rome was by far the biggest beneficiary of the bond-buying with €99 billion of its bonds being held by the SMP at the end of 2012.

The ECB’s declared profit represents just 8 per cent of the total portfolio, with the rest being retained among the eurozone’s 17 national central banks who helped conduct SMP operations. Assuming the yield on the ECB’s share of the portfolio is roughly the same as the rest, that implies total interest income of about €14 billion.

With the exception of Greece, where European leaders agreed to channel profits from the SMP programme back to Athens, the gains from the bonds will be treated like any other central bank profit and can be kept or sent back to national governments at those banks’ discretion. That also means the profits can be kept by central banks in countries such as Germany that have fared better through the crisis.

In figures released with annual accounts to increase the transparency of its operations, the ECB also said it earned €555 million last year and €654 million in 2011 on its Greek bond holdings. Because the SMP bonds still pay interest and were bought at depressed prices, they yield a lot of interest.

At the end of 2012, the other SMP portfolio holdings included €30.8 billion in Greek debt, €43.7 billion in Spanish paper, €21.6 billion in Portuguese debt and €13.6 billion in Irish bonds.

Full article (FT subscription required)

ECB-press release

ECB-annual accounts

© ECB - European Central Bank