Italian Banks Face Funding Squeeze as Debt Crisis Widens

Italian banks, saddled with the nation’s record borrowing costs, may struggle to reverse a drop in profitability that’s already turned UniCredit SpA and Intesa Sanpaolo SpA into European laggards.

Italy’s two biggest lenders have about 55.4 billion euros ($78.4 billion) of debt maturing in 2012, according to the banks. Investor concern that the sovereign debt crisis is spilling over to Italy, which has the region’s largest debt, pushed the country’s 10-year bond yields to their highest relative to German bunds since the introduction of the euro, adding about 1 percentage point to funding costs this month.