During a leisurely stroll around Germany, one may encounter many strange sights but nothing would stranger than the following ad (courtesy of Peter Barkow) which promises negative 1% interest rates for consumer loans up to 24 months.
Here is the quick and dirty: take out a loan and pay 1% less.
For the fine print we go to Santander Consumer Bank AG, which has this to which has this to say about this self-amortizing (if only in the beginning) loan.
-1.0% FINANCING
Finance now with 0% and is pay 1% off the purchase price.
An exclusive designer bed for only 78 euros a month, or a designer dining table for only 88 euros a month - what are you waiting for?
Fulfill your desires today and pay conveniently in small monthly installments - and get this money back yet!
To mark the 20 years of existence of WHO'S PERFECT, we offer the whole of April at a negative interest rate financing.
This means that you get refunded after delivery of your goods 1% of the amount of funding of the purchase contract.
Purchase in all our stores and of course here in the online shop you can easily and conveniently fund. So luxury is made easy!
Now -1.0% financing for 24 months (in monthly installments)
Santander Consumer Bank, Santander-Platz 1, 41061 Mönchengladbach
Sorry, no refugees allowed. Here are the conditions:
For financing the following requirements must be satisfied in principle:
- You must be of legal age
- You must have your primary residence in Germany
- You must have a checking account at a bank in Germany
- You must have a steady income
- You must have a valid identity card or passport with registration card
- In case of non-EU citizens are further evidence as residence and work permit and a current registration certificate required
Jest aside, what this ad does is scream deflation. Or maybe that's the German banks screaming:recall that as shown earlier this week, European bank stocks have been tracking the 10Y Bund lower tick for tick. Why? Because the lower rates go, the lower the interest margin profit.
And when rates go negative, so do profits. At that point all banks can hope for is to charge customers one off "violation" fees to offset the NIM losses in a world in each every loan assures an at least 1% loss for the first 24 months of the loan.
What is more troubling is that now that one bank is offering such loans (to stimulate demand) all other banks will follows suit, and what is initially a 24 month promo period will quickly become set for the duration of the loan. And then we will see an even more unexpected ad, when -2% rates emerge, then -3%, until finally the bank "market test" of where the equilibrium consumer loan demand is to be found provides an answer.
Meanwhile, even more deflation will be unleashed across Europe as both short and long-term consumer expectations for inflation plunge and instead everyone is looking forward to the latest and greatest negative rate loan which not only pays itself off but reduces the purchase price.
All of this will continue until the ECB does one or all of the above: i) forces banks to cut deposit rates negative; ii) eliminates cash; iii) starts the money helicopter.
As we write, Mario Draghi is already working on all of the above.