Back in September, when the results of the first much-trumpeted TLTRO were announced, everyone said it was a clear disappointment, when European banks expressed just €82.6 billion in ECB credit demand, far below the €100-€300 billion range expected...

... and well below the €400 billion across the two 2014 TLTROs hinted by Mario Draghi. Today, we got the second TLTRO-3 result which too, was a flop, if not quite the disaster the first one was, when the ECB announced that just €129.84 billion was allotted in today's TLTRO result, spread among 306 counterparties, or 51 more than the bidder who signed up for the first TLTRO, resulting in an aggregate take up for both auctions of only €212 billion, which also happens to be €55 billion, or 21%, below the consensus expectations observed in a Goldman poll back in September 9, €40 billion below the Bloomberg median consensus estimate of €170 billion for the second TLTRO, and half the total cap of €400 billion.

More improtantly, unless there is a massive surge in the TLTRO-4 scheduled for 2015, the liquidity gap from the winding down LTRO 1&2 is only set to increase: it is already at a sizable -€59 billion.

Then again, with every ECB operation so far being a disappointment, considering only €21.5 billion in liquidity has been injected into the system via the ECB's ABCPP and Covered Bond purchase programs, and so far the TLTRO tracking at just about half of official expectations, this was promptly spun as great news for Europe as it means ECB public debt QE is inevitable. Recall what we said three months ago:

In fact, the less TLTRO taken up, the higher the push back to the ECB to do more private and public QE on its own!

Now if only Mario Draghi did not have an open revolt on his own board and if he had the backing of the EU (and Germany it goes without saying), then all would be well. In fact, judging by the kneejerk reaction, it would appear even the EUR isn't so sure public QE is imminent, after it dropped to session lows of 1.2414 on the result, only to resume its drift higher.

Here are some kneejerk sellside responses via Bloomberg:

• The European Central Bank’s second round of long-term loans came in at the low end of analysts’ estimates, bolstering the case for the institution to start large-scale quantitative easing: BBG
• Second ECB TLTRO takeup of EU130b confirms that TLTROS, ABS and covered bond program aren’t enough to expand the central bank’s balance sheet by EU1t, Roberto Cobo Garcia, fx strategist at BBVA says in e-mailed comments. Sovereign QE will be needed to reach ECB’s objetive.
• 2nd TLTRO takeup isn’t going to halt the push toward QE in 1Q 2015, fx strategist Peter Frank adds

And the spin goes on. Finally, here is Goldman:

LTRO-3, part 2: €129 bn allocated vs. our expectation of €120-180 bn

€129 bn take-up (total €212 bn)

Today, the ECB announced €129 bn take-up for the second tranche of the LTRO-3 allocation; the aggregate take-up for both auctions was €212 bn.

Two points:

(1) Aggregate take-up of €212 bn compares to our estimate range of €200-260 bn; it is €12 bn (6%) above the bottom end of range (€48 bn, 19% below top end).

(2) Compared to consensus, the aggregate take-up is €55 bn (21%) below consensus expectations (as per our survey published on September 9, in LTRO-3: A liquidity operation, not a silver bullet for lending).

Net injection a function of LTRO-1&2 put-back

Today’s LTRO-3 funds allocation represents a gross injection of liquidity. The ‘net’ injection will be a function of LTRO-1&2 put-backs, which will be announced on Friday.

All LTRO-1&2 funds need to be returned to the ECB by the end of February 26, 2015. LTRO-3 auctions, in total (€212 bn), are less than the residual amounts of LTRO-1&2 (€271 bn) funds outstanding.

LTRO-3: Allocations vs. current usage

LTRO-3 was capped at €400 bn, of which €212 bn was drawn; allocation eligibility for individual banks was proportionate to the size of their eligible loan books. Allocations do not map well with current LTRO-1&2 usage (€271 bn), which is heavily skewed at the country level (Italy and Spain) and within individual countries (mid-sized banks). We believe that select banks will look to fill the liquidity shortfall with a combination of (1) MRO, (2) market REPO and (3) ALM book cuts.

LTRO-4: The bigger chunk of TLTRO

We see LTRO-4 as a more potent liquidity tool and estimate take-up, spread over 2015 and 2016, in the €520-610 bn range.