Investment banks help lenders tap ECB funds

Investment banks are said to be secretly acting as middlemen to give UK lenders access to some of the £254bn worth of emergency funding the European Central Bank is pumping into the wholesale lending markets to improve liquidity.

ECB funds are available on less onerous terms than the miserly £20bn the Bank of England has released to boost liquidity but are only available to financial institutions with a eurozone presence.

This condition is not a problem for some big UK operators such as Barclays, Lloyds TSB, the Royal Bank of Scotland and HBOS.

But other lenders are not so fortunate and according to a report in the Daily Telegraph on February 25, they have had to use investment banks to broker deals.

The report states Alliance & Leicester has paid £150m to secure funding until 2009 in what finance director Chris Rhodes calls “the cost of the credit crunch”.

According to the report, A&L has securitised £17bn worth of mortgage assets in two vehicles, pledging what it calls a material proportion as collateral against new facilities.

It is not clear if the investment banks have exchanged pledges for funds at the ECB but it is understood that A&L’s collateral would be acceptable once restructured.

A&L confirmed the deal but told Lending Strategy that while the arrangements met the ECB’s criteria for emergency funding, its contract was with the investment bank. It went on to say any subsequent deal between the investment bank and the ECB was not a matter for A&L.