LTRO addiction unlikely, says Polar Capital's Yakas

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The short-term LTRO programme provides a necessary confidence boost for markets and there is little chance of the eurozone becoming dependent on ECB funding, top financials manager John Yakas (pictured) has said.

Speaking to Citywire Global, the Polar Capital manager said the €489 billion short-term liquidity operation for banks is not designed to solve the eurozone crisis but provide much needed stability for the region’s ailing banking sector.

The Euro Stars A-rated manager’s comments come off the back of suggestions the three-year loan programme, which is due for a second round on February 29, could lead to an over-reliance on central funding and damage the euro.

There have also been some concerns raised that the programme has masked the real difficulties in the eurozone.

Yakas said: ‘By providing liquidity, it maybe provides a bit of calm in the market and that might spark private capital markets to open up a bit more. During the last round, there was evidence that we started to see banks able to issue different instruments off the back of that first round.’

He added there is an outside chance of some reliance on central funding if the economic picture remained weak. However, Yakas said he did not expect this to happen.

‘They will become reliant on it if the whole economic picture remains weak and, in that context, it is fairly negative for the medium to long-term, but I don’t think I am in that camp.As it plays out, we will see positives,’ he said.

‘Ideally, in the medium to long-term, we don’t want the banking sector to be reliant on central banks, as they should be able to fund themselves. It is a symptom of a banking sector which is still very troubled.'

Demand for funding

Yakas said the demand for central funding was currently shrinking in Europe as a whole but market commentators are too focused on extreme cases such as Greece.

‘People want to focus on the worst examples all the time but there are other place that are under same pressure in terms of domestic deposits. They are facing difficulties but not to the same extent,’ he said.

Since its launch in May 2011, Yakas’ Financial Opportunities fund has lost 12.8% in dollar terms. This is while the FTSE AW/Financials TR has fallen by 14%.

Meanwhile, in the past three years, the Polar Capital Asian Financials fund has returned 101.3%. This is while its Citywire benchmark, the MSCI AC Asia Pacific ex Japan TR has risen by 103.2%.