Economic, Banking and Financial industry - Your money

Money markets spanish bank cds jumps as contagion risks spread

* CDS on debt from Santander, BBVA jump over past month* Spanish sovereign CDS also rises on fiscal concerns* ECB exit strategy seen a way offBy Ana Nicolaci da CostaLONDON, April 5 The cost of insuring debt issued by Spanish banks against default has risen sharply over the past month, as a tough budget this week did little to soothe concerns over the country's deteriorating fiscal situation. Default insurance for Santander is up 52 percent since March 1 to 393 basis points and the equivalent for BBVA jumped 54 percent over the same period. Both Spanish banks underperformed the Markit iTraxx senior financials index - which measures Europe's financial institutions' insurance, or credit default swap prices. It rose by 20 percent over the same period. Markit analyst Gavan Nolan said s lot of the moved was caused by the European Central Bank's low-interest, three-year loan programmes, or LTROs, that have pumped money into the banking system.

"They've actually tightened the relationship between the banks and the sovereign. So the banks have been buying sovereign debt and that has made their fortunes even more intertwined than they have previously," he said. Pressure on Spanish government debt has had a knock-on effect on banks. Yields on 10-year Spanish bonds this week rose to their highest since December 2011 at 5.8 percent after the Spanish Treasury had to pay more dearly to borrow in an auction. The cost of insuring Spanish sovereign debt against default meanwhile has jumped 111 basis points to 467 bps over the past month, according to Markit data. This means it costs $467,000 annually to buy $10 million of protection against a Spanish default using a five-year CDS contract.

Spain' tough budget this week has not been enough to calm investor nerves and many fear too much austerity could choke an already struggling economy where unemployment rose to a staggering 22.9 percent in the fourth quarter of 2011 - the highest in the European Union. NO EXIT After keeping interest rates steady at 1.0 percent on Wednesday, European Central Bank President Mario Draghi said it was premature for the bank to start planning a retreat from emergency crisis-fighting and that the ECB would need time to see the full impact of bumper funding operations it has used to help banks.

Several policymakers, led by the German Bundesbank chief Jens Weidmann, had said in recent weeks the ECB needs to prepare an exit strategy after the massive cash injection - comments that led to a steepening of the money market curve as markets priced in higher rates in 2013 and 2014. But Alessandro Giansanti, senior rate strategist at ING, said markets had scaled back chances of higher rates in 2014 after the meeting, with 3-month Euribor rates coming further under pressure to hit their lowest since June 2010. The bank-to-bank rate, traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, fell to 0.766 percent from 0.768 percent in the previous session. Giansanti said the ECB would have to see the inter-bank market functioning again to unwind the measures it took to shore up the banking system."The peripheral banks are still not able to get money in the interbank market so they are relying too much on the ECB," he said. But with domestic banks in struggling peripheral countries increasingly leveraged with their own risky debt, such normalization may still be a way off."I think the pressure is going to continue on Spain and there's going to be more pressure for the ECB to provide further liquidity," Nolan added. "I don't think we are at the stage of an exit strategy yet."

Rlpc russian banks and companies seek alternatives to loans

* State-owned banks cancel loan refinaning plans* Companies consider smaller loans at higher pricing* Bankers point to 30-50bp pricing increaseBy Sandrine BradleyLONDON, April 25 Russian banks and companies are looking for alternative financing to tackle a freeze in syndicated lending which includes repaying existing loans, raising new bilateral loans from international and Russian banks and rouble loans from domestic lenders. State-owned VTB, Russia's second-largest bank, is likely to repay a $3.13 billion, three-year loan that is due to mature in July rather than refinance it, bankers said. State bank Vnesheconombank (VEB) also cancelled plans to refinance a $2.45 billion loan this week, citing weak investor appetite and unfavourable terms for a new loan. VEB said that it will repay the loan with a view to returning to the market later in the year when the geopolitical situation may have changed."What the VEB situation has clarified is the suspension of credit for Russian institutions for the time being at least," a London based banker said. VTB has already cancelled plans to refinance this loan, a second banker said. VTB declined to comment."No-one can predict what will happen in the market but one thing that is certain is that a $3 billion loan is out of reach today," a third banker said. The lack of appetite for new loans for VEB and potentially VTB follows heavy sales of short-dated Russian bank loans in Europe's secondary loan market in the last month as Western banks try to reduce their Russian exposure.

Banks have been selling short-dated Russian loans to reduce the discounts that they have to offer to sell the paper . Lenders are now also selling VTB and VEB's longer dated loans after VEB said that it would repay its loan due to general uncertainty. VTB's $2 billion loan which matures in March 2016 was trading at 97.5 percent of face value on Friday and VEB's $800 million December 2015 loan was quoted at 96.4 percent, according to Thomson Reuters LPC data. COMPANY RETHINK Russian companies are also rethinking their approach as banks continue to walk away from syndicated loans due to uncertainty over economic sanctions.

A $1 billion club loan for petrochemicals company Sibur is still hanging in the balance after several banks pulled out of the deal. Sibur's loan stalled in late March after US sanctions were issued against some individuals, including Gennady Timchenko, who owns a 37.5 percent stake in Sibur. Only four banks are left in the deal, bankers said, which leaves Sibur with the option of pushing ahead with a smaller club loan with an accordion feature to potentially expand the deal and bring in other banks at a later date."The prospects of smaller clubs still being put together are diminishing as the rhetoric around the Ukraine becomes more urgent," the third banker said. Borrowers may be reluctant to take smaller loans for reputational reasons and bankers and borrowers are still arguing over the correct pricing level for international loans as the crisis shows no sign of abating. Loan pricing for top Russian companies was 150 basis points (bp) before the crisis. Bankers are pointing to a 30-50bp rise, although some put the figure higher.

"Borrowers will consider reducing the loan size but pricing is still a sticky issue," the fourth banker said. Relationship banks may be prepared to offer private bilateral loans on better terms than market-clearing pricing on syndicated loans, bankers said. Norilsk Nickel signed two five year bilateral loans totalling $750 million from Unicredit and Raiffeisenbank this month."Banks are looking at other ways to deploy money outside of international syndications and approaching Russian corporates with good bilateral deals," the first banker said. Raising rouble-denominated loans from Russian banks is an increasingly attractive alternative. Sibur was reported to have signed a bilateral loan with Sberbank this week."State owned banks have always been very accommodating," the first banker said. Companies that are willing to pay up for smaller syndicated loans could potentially access the market before the situation deteriorates further. VimpelCom signed a $1.65 billion deal on April 8, which was smaller than an initial target of $1.8 billion, with a slightly higher margin, bankers said. Steel company Evraz, which was not expected to tap the loan market until after the summer, has brought its financing plans forward and is pushing for a $1 billion loan."Some companies might try to borrow smaller loans now at reasonable rates compared to local dollar funding and before prices are hiked and more banks fall out," the second banker said.