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Italian Banks May Need $8.2 Billion as Bonds Slump

Italian Banks May Need $8.2 Billion
Italy’s five biggest banks, including Intesa SanPaolo SpA, may need to raise a combined 6.1 billion euros ($8.2 billion) of additional capital as the Italian government bonds they own deteriorate in value. Photographer: Dave Yoder/Bloomberg

Italy’s five biggest banks, including Intesa Sanpaolo SpA, may need to raise a combined 6.1 billion euros ($8.2 billion) of additional capital as the Italian government bonds they own deteriorate in value.

Two-year Italian debt, which the banks valued at 97 cents on the euro or better on Sept. 30, trades at about 92.7 cents. That suggests Intesa, UniCredit SpA, Unione di Banche Italiane SCPA, Banco Popolare and Monte Dei Paschi di Siena SpA need more capital, today’s Bloomberg Risk newsletter reports. Spokespeople at all five banks declined to comment on their capital needs.

The European Banking Authority instructed Unicredit, UBI, Banco Popolare and Monte Dei Paschi to raise new capital by June 2012, to meet its revised 9 percent core tier one ratio. The EBA cited a slump in the government securities they held at the end of the third quarter.

UniCredit owned 40 billion euros of Italian bonds at 97.2 percent of face value, according to a results presentation covering the three months to Sept. 30. Intesa, with 63 billion-euros of securities, increased the amount set aside against those assets by 1.6 billion euros, suggesting a valuation of 97.4 percent of face value, according to third quarter results.

Italian banks, which have the largest proportion of government bonds to market capitalization in Southern Europe according to estimates by Royal Bank of Scotland Group Plc, face increasing pressure from investors and European regulators to revalue their debt holdings.

‘Larger Capital Needs’

“If the link between the value of government bonds and capital requirements continues, as shown in the latest EBA analysis, further volatility in sovereign spreads could result in larger capital needs,” said Alberto Gallo, senior credit strategist at RBS in London.

UniCredit, Italy’s biggest bank, posted a surprise 10.6 billion-euro third-quarter loss on Nov. 14 after taking an impairment charge of 8.7 billion euros, including goodwill writedowns on its investment bank, the purchase of Germany’s HVB Group and businesses in Ukraine and Kazakhstan. The bank said it plans to sell as much as 7.5 billion euros of stock to plug the biggest capital shortfall among Italy’s lenders, and scrapped its dividend.

Antonio Vigni, chief executive officer of Monte dei Paschi, which owns 20 billion euros of Italian government bonds and has a 3.1 billion euro shortfall to meet the EBA’s target, has criticized the requirement.

Penalizing Italy

“I would like to underline the assessments I made and the judgments I passed on the exercise that was conducted by the EBA as being temporary and it has been unanimously considered as penalizing the Italian banks,” Vigni said on a Nov. 10 earnings call.

Former Intesa Sanpaolo Chief Executive Officer Corrado Passera said that the value of Italian debt will recover. “The pressure that the marketplace is today putting on Italian government bonds has grown in recent weeks and months and spreads that have been reached are certainly a cause for concern,” he said on a Nov. 8 earnings call. “We remain convinced that our country will meet all its obligations and progressively we will reduce our overall indebtedness.” Passera was named economic development minister by Italian Prime Minister Mario Monti on Nov. 16

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