Italy Banks’ ECB Borrowings Fall as Lenders Cut Bonds

Italian banks’ borrowing from the European Central Bank fell for a second month as lenders in the country reduced their sovereign debt holdings.

Total borrowing by Italian banks fell to 276.7 billion euros ($360 billion) in September from 280.7 billion euros in August, the Bank of Italy said on its website today. Most of the decline came from the main refinancing operations, which fell by about 4 billion euros to 4.16 billion euros.

“The spread between Italian and German sovereign bonds narrowed in August and September, allowing Italian banks to sell Italian debt, take advantage of rising prices and reduce their borrowing needs from the ECB” said Fabrizio Bernardi, a Milan- based analyst at Fidentiis Equities.

Italian banks cut their sovereign debt holdings by 6 billion euros in August, according to data released by the ECB. This is the first decline in government bond holdings in eight months. Lenders in Italy borrowed more than 255 billion euros from the ECB in two auctions of three-year loans in December and February. They increased their exposure to government bonds in the first half by 78 billion euros, borrowing money at 1 percent and buying securities yielding more than 4 percent.

UniCredit SpA (UCG), Italy’s biggest bank, held about 40 billion euros of Italian bonds as of June 30, while Intesa Sanpaolo SpA (ISP)’s total holding of the country’s sovereign debt exceeded 80 billion euros at the end of June. Banca Monte dei Paschi di Siena SpA (BMPS) owned 25 billion euros of bonds. The Italian 10-year yield spread with comparable German bunds narrowed 115 basis points between August and September.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net; Giovanni Salzano in Rome at gsalzano@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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