Alors Jean-Claude! Voici le Crunch…
Last week, from Trichet:
We see no credit crunch, certainly not when you look at the figures that have been published… Since mid-September we have a very, very, big, significant intensification of intentions which are associated in particular, but not exclusively, with the collapse of Lehman Brothers and since then we are in a situation where we have to be particularly attentive but I cannot say at all that at the moment we are seeing a credit crunch…On the contrary we continue to see outstanding credit continue to growth.
But from Bank of America this morning comes a note entitled “the credit crunch is starting”:
A genuine credit crunch, i.e., an exogenous contraction in credit supply, was hard to substantiate in the Eurozone until the summer. However, the picture is now changing for the worse with the data for credit origination and corporate debt issuance for September, when the credit market turmoil intensified spectacularly. In the three months to September, the flow of new loans to the corporate sector fell to €334bn in annualized terms, the lowest level since October 2005 (see Figure 11).
Furthermore, even if credit supply was still relatively abundant before September, financing costs had already started to rise significantly. The average rates on floating mortgages rose from 5.0% in June 2007, before the financial market turmoil started, to 5.80% in September 2008 (last available data). The average rate for corporate investment loans rose from 5.17% in June 2007 to 5.588% in September 2008.
In the second half of 2008, refinancing costs are likely to rise further, since banks have until now absorbed a large share of the increase in their own refinancing costs in their interest rate margins. On top of the increase in bank loan rates, corporations in the Eurozone are now facing a steep increase in their market debt costs. The interest rate on low-risk corporate debt from major Eurozone real economy names have shot up 250 bps in the recent weeks.
Aux armes citoyens! The cookie [
monster] crumbles!
The ECB looks set to do more. Inflationary pressures are clearly abating. In the current circumstances, the speed of the monetary relaxation probably matters more than the actual level of the policy rate to stop a self-reinforcing negative spiral in investor and business sentiment. We expect at least a further 50 bp cut in December, and we believe that the policy rate could be as low as 2.0% as soon as March 2009. We see a significant chance that the ECB could ease by 75bp in December instead.______