Italian Banks Fall as Politics Spreads Uncertainty: Milan Mover

Italy’s banks, led by UniCredit SpA (UCG), fell in Milan trading as the political uncertainty ahead of the country’s elections drove the spread between Italian and German government bond yields higher for a fourth straight session.

UniCredit, the nation’s biggest bank, declined as much as 4.5 percent and was down 19 cents to 4.44 euros at 12:37 p.m., while Banca Monte dei Paschi SpA, the third-largest lender, fell 3.5 percent to 22.39 cents. The FTSE Italia All-Share Banks Index, which has gained 14 percent this year, dropped 3.1 percent. The 46-member Stoxx 600 Banks Index slid 0.5 percent.

“The risk of ungovernability remains very high” as “it is increasingly likely that the shape of the government will be decided as a consequence of post-election alliances,” Silvio Peruzzo, an economist at Nomura Holdings Inc., wrote in a note to investors. “This is a recipe for instability and could be a catalyst for uncertainty in the market.”

Italy’s former premier Silvio Berlusconi, 76, has gained on front-runner Pier Luigi Bersani, ahead of the Feb. 24-25 general election. His coalition closed the gap with the center-left bloc to 5 percentage points in an SWG Institute survey last week. Berlusconi, who promised yesterday to refund a property tax paid last year, “wants to buy the votes of Italians with the money that Italians had to turn over to cover up the shortfall left in the public accounts by Berlusconi,” Prime Minister Mario Monti said today.

“The banks are the main victims of current uncertainty given the huge amount of sovereign debt they hold,” said Vincenzo Longo, a Milan-based strategist at IG Markets. “Their decline is amplified by last month’s rally.”

Italian banks’ holdings of the country’s sovereign debt increased by 68 percent to 344 billion euros ($467 billion) at the end of November from a year earlier, making the lenders more dependent on the financial strength of the government. The spread between Italy and Germany 10-year bonds increased 8 basis points to 274 basis points, the highest since Jan. 10.

Intesa Sanpaolo SpA (ISP), Italy’s No. 2 bank, dropped 2.6 percent to 1.42 euros, while Banco Popolare SC (BP) fell 3.5 percent to 1.49 euros.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net Francesca Cinelli in Milan at fcinelli@bloomberg.net

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