European companies, fed up with scant lending from tight-fisted banks, are turning to new sources of financing, including preparing to tap the European Central Bank's low-interest loan programme directly.
Some are issuing the first corporate bonds in their history. But those with financial arms -- particularly carmakers -- are gearing up to skirt the banks and go straight to source.
The ECB will offer billions in three-year, low interest loans next Wednesday with uptake of the so-called LTRO expected to be in the region of 500 billion euros (424.7 billion pounds).
Banks took 489 billion euros in December from the first such operations - a huge injection of money at a time when heightened bond market tensions and bank funding pressures were putting the future of the euro zone in question.
ECB President Mario Draghi said after banks tapped the funds a major, major credit crunch had been averted. They used much of the money for their own refinancing needs and to buy some sovereign bonds, helping lower Spanish and Italian bond yields.
But little has reached companies and households so far.
Loans to euro zone companies fell at the fastest pace on record in December and anecdotal evidence seen by ECB officials suggests the LTRO has not led to a significant pick-up in lending in January.
It will likely be slow for the LTROs to make an impact on bank lending, said Morgan Stanley economist Elga Bartsch. Liquidity is only a necessary but not a sufficient condition that there will be bank lending to the corporate sector.
So companies are not waiting to see whether the ECB's second three-year lending operation on February 29 will result in an increase in bank lending to businesses.
Instead, many are adapting to the reality of harsher bank borrowing conditions -- higher interest payments or tighter collateral rules, for example, and seeking alternatives.
On the whole we can see that corporates have been working hard to become less dependent on the banking system over the last few years and to rely less on banks for funding, said Morgan Stanley's Bartsch.
CARMAKERS GO SOLO
Some companies see the LTROs as an opportunity to short-circuit banks. Large corporates - particularly carmakers - with their own banking units are likely to be among the bidders at next week's tender.
BMW went as far as consolidating its financial services offshoots from Spain, Portugal and Italy under a German banking license, BMW Bank GmbH, to be more flexible and to use deposits as an additional refinancing source.
Carmakers say commercial banks focused on their core businesses in the last financial crisis in 2008, shunning the auto sector's retail financing operations and forcing them make their own funding arrangements.
BMW did not want to comment on whether it would tap the ECB's cheap funds next week, but the head of BMW Financial Services Erich Ebner von Eschenbach told Reuters in November that the company wanted to improve its access to liquidity.
To ensure a sufficient supply of liquidity even in times of crisis, we are expanding our own access to capital markets, Ebner von Eschenbach said at the time.
The financial service units of Daimler
Siemens had no comment.
The industrial conglomerate tells a similar tale. Siemens Financial Services acquired a banking license in December 2010, which allows it to access ECB funds directly, making it less dependent on swings in the money market.
The flip side of this is that a growing number of small and medium firms, also known as SMEs, have turned to the conglomerate's banking arm for funding as their borrowing conditions got tougher.
SMEs are among those feeling the squeeze most as they are most reliant on bank financing, especially in Germany, Europe's economic powerhouse, where the so-called Mittelstand companies employ roughly two thirds of its workforce.
In Europe, non-bank funding is generally lower than for example in the United States, where the private lending market is developed and 80 percent of total corporate borrowings come from non-bank debt. In Europe, this is less than a third.
This dynamic is also reflected in the way central banks have decided to tackle the repercussions from the financial crisis.
While the U.S. Federal Reserve since late 2008 has bought $2.3 trillion in long-term securities to spur growth and revive the economy, the ECB is relying on banks to pass on the unlimited funds it is providing, now also with 3-year loans.
ECB money supply data on Monday may give some indication on whether the ECB's measures are unblocking the lending channels.
In Europe's largest economy, Germany, the private lending market is gaining in importance beyond the non-bank financial arms.
A recent study by Moody's Investors Service showed that companies are undergoing an intensified structural shift towards bond issuance.
Thanks to the launch of a special segment for smaller issuances between 25 and 150 million euros two years ago, German SMEs now also have access to the bond market.
The first to tap the market this year was family-run Scholz AG, one of the world's largest recycling companies for steel scrap. After relying on bank funding for 140 years, the family-run business issued its first bond last week, raising 150 million euros with a 5-year maturity for 8.5 percent interest.
The company wanted to be more flexible and get a better negotiating position with its banks, said Peter Thilo Hasler, managing director at Blaettchen & Partner, who advised Scholz on the deal.
It may be a bit more expensive than a bank loan, but it makes planning a lot easier, he said. The old economy is increasingly looking for alternatives to bank lending.
The German daily Sueddeutsche Zeitung recently captured the mood with a headline: Bye-bye, banks.
This detachment from banks, meanwhile, could undermine the ECB's strategy of flooding the banking system with unlimited liquidity in the hope that banks pass on the funds to the real economy.
If this fails, the ECB may have to resort to more direct measures.
Some economists said the ECB may have to follow the example of central banks in the United States, Britain and Japan by embarking on a quantitative easing (QE) programme - increasing the money supply by buying securities from the market.
The hawks among the ECB Governing Council members - led by Germany's Jens Weidmann, Luxembourg's Yves Mersch, and the Netherlands' Klaas Knot - are, however, likely to oppose such an measure out of concern that it could fuel inflation.
Morgan Stanley's Bartsch said the ECB could launch QE before the summer, depending on how well the LTROs work out.
We need to see whether the ECB's indirect route will work to avoid a credit crunch, Bartsch said, adding that she was less optimistic than ECB President Mario Draghi, who said in January that the first LTRO had avoided a major credit crunch.
At the moment, it looks as if he could be right, but it is too early to declare victory. We are not out of the woods yet.
(Additional reporting Laurence Frost in Paris, Andreas Cremer in Berlin, Hendrik Sackmann in Stuttgart, Edward Taylor in Frankfurt, Irene Preisinger in Munich. Editing by Jeremy Gaunt.)