Italy Banks Said to Use State-Backed Bonds for ECB Loans

Italian Deputy Finance Minister Vittorio Grilli
Italian Deputy Finance Minister Vittorio Grilli. Photographer: Victor Sokolowicz/Bloomberg

UniCredit SpA and Intesa Sanpaolo SpA are among Italian banks that used bonds guaranteed by Italy as collateral to obtain loans from the European Central Bank at today’s auction, two people with knowledge of the matter said.

Italian banks issued about 40 billion euros ($52 billion) in state-backed bonds, the Italian exchange said in a filing yesterday. UniCredit issued 7.5 billion euros of the bonds and Intesa Sanpaolo created 12 billion euros of notes maturing in March. The bonds were to be used as collateral for the ECB auction, two people familiar with the situation said yesterday.

Italy’s biggest lenders met Italian Deputy Finance Minister Vittorio Grilli yesterday to define the terms of the transaction, said the people, who asked not be named because the talks are private. The Treasury agreed to back the bonds, which the banks will keep on their books, using rules introduced by Prime Minister Mario Monti two weeks ago, the people said.

The plan, which is part of a law approved Dec. 4, allows the Treasury to offer guarantees for bonds issued by banks in order to give them more access to ECB liquidity, an effort to lower funding costs. The debt crisis has increased the risk of Italy’s sovereign debt, driving up the cost of credit.

‘Liquidity Concerns’

The Frankfurt-based ECB awarded 489 billion euros in 1,134-day loans, more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which will be lent at the average of its benchmark rate -- currently 1 percent -- over the period of the loans. They start tomorrow.

“This ECB facility will likely smooth the short-term liquidity concerns,” analysts at Fidentiis equity wrote in a note to clients today. “Still we remain fairly negative on Italian banks on concerns about the Italian unsustainable debt/GDP ratio.”

Italian banks borrowed 116 billion euros from the ECB today, according to a person with direct knowledge of the loans who wasn’t authorized to discuss them publicly. Reuters reported the amount earlier.

The central bank yesterday invited lenders in the euro region to place orders for its first tranche of unlimited three-year loans, an attempt to keep credit flowing to the 17-nation economy. The ECB is lending banks as much as they ask for and has widened the pool of collateral they can use to secure the funds.

Unlimited Funds

ECB President Mario Draghi announced the plan to offer lenders unlimited funds for three years after the central bank’s policy meeting on Dec. 8.

Officials at UniCredit and Intesa Sanpaolo, who asked not to be named in keeping with company policy, declined to comment. A spokeswoman for the Treasury also declined to comment.

Banca Monte dei Paschi di Siena SpA issued 10 billion euros of state-backed bonds, Banco Popolare 3 billion euros and the Italian unit of Dexia SA 1.05 billion euros.

UniCredit rose 0.3 percent to 74 euro cents at noon in Milan. The shares have fallen 52 percent this year. Intesa Sanpaolo climbed 4.4 percent to 1.35 euros and has dropped 32 percent in 2011.

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