December 22, 2011 / 5:15 PM / 8 years ago

UPDATE 1-Spanish banks use ECB cash to cover maturing debt-sources

* ECB money goes to cover 2012 funding spike

* BBVA takes 11 bln euros to help roll over debt

* Carry trade on sovereign debt a secondary use (Releads, adds second source)

By Jesús Aguado and Sonya Dowsett

MADRID, Dec 22 (Reuters) - Spanish banks will use the majority of the cheap long-term cash from the European Central Bank to cover steep 2012 debt maturities, market and banking sources said on Thursday.

Spain’s banks face a massive spike in their funding needs next year with around 130 billion euros ($170 billion) of debt coming to maturity. Many banks took on 3-year, government-guaranteed debt in 2008, making up a large part of borrowing.

“The banks that have taken part in the auction have primarily done so to finance the hefty maturities that fall next year, mostly in the first half,” said one savings bank source.

Spanish bank BBVA took around 11 billion euros ($14.4 billion) in the European Central Bank’s offer of cheap long-term cash to help cover 2012 debt maturities, a market source said.

Over 500 European banks took part in the auction, borrowing 490 billion euros. Nearly all Spanish banks participated in the 3-year ECB auction and altogether took up between 50 billion and 100 billion euros.

“A large part of the capital has been taken to cover short-term maturities, regardless of the size of the bank,” said Jose Carlos Diez, chief economist at Intermoney.

Italy’s two top banks UniCredit and Intesa Sanpaolo said on Thursday they would use the cheap ECB liquidity to help fund Italian industry and families.

More than a dozen Italian banks, including UniCredit and Intesa Sanpaolo, tapped the ECB for 116 billion euros, sources told Reuters on Wednesday.

Spain’s second-biggest bank BBVA will not buy sovereign debt with the proceeds, the market source said, due to the European banking regulator forcing banks to mark down their sovereign holdings.

BBVA will not do the ‘carry trade’, whereby banks borrow the ECB money at 1 percent and buy government bonds with the same maturities from euro zone sovereigns, exploiting the difference in yields which could amount to more than 400 basis points.

“The bank is not going to buy sovereign debt when these kind of holdings have been the most penalised in the recent EBA exercises,” the source said.

A BBVA spokesman declined to comment on the matter. BBVA has 11 billion euros of debt maturing in 2012.

A spokesman at Santander, the euro zone’s biggest bank, also declined to comment on the ECB auction.

The huge take-up on behalf of the Spanish banks plus a halving of short-term Spanish paper yields at an auction on Dec. 20 indicated that banks were also taking part in the carry trade and would likely use the proceeds to improve 2012 results, the savings bank source said. ($1 = 0.7654 euros) (Reporting By Jesus Aguado, Writing by Sonya Dowsett, Editing by Fiona Ortiz and Jon Loades-Carter)

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