Banks including Barclays PLC, Lloyds Banking Group PLC, Crédit Agricole SA and KBC Group NV have borrowed billions of euros under the ECB's three-year-loan programme through their subsidiaries in Spain, Portugal, Greece and Ireland. The goal is to make those units more financially self-sufficient.
Bank officials and outside experts say the strategy is an effort to limit the parent companies' exposure to their far-flung subsidiaries in case the local economies deteriorate further. It would also make it easier to sever ties with the subsidiaries if, in an extreme case, one of the countries were to leave the eurozone, they say.
"It doesn't signal confidence", said Philippe Bodereau, a managing director with bond fund manager, Pimco. "It's also pretty cheap self-insurance [and] helps banks disentangle themselves" from their subsidiaries. The ECB has been doling out the three-year loans in an effort to avert a catastrophic cash crunch as European banks, locked out of traditional funding markets, struggled to repay waves of maturing debts.
A popular move among some banks has been for their subsidiaries in troubled European countries to borrow directly from the ECB. The parent companies could then stop plunking down as much of their own money to bankroll the units' daily operations.
That has at least two advantages. First, the 1 per cent interest rate is well below what banks, especially those in countries like Greece, Ireland and Portugal, would have to pay to borrow from the markets. More important, it allows the parent companies to distance themselves from their struggling subsidiaries.
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© Wall Street Journal
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