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Banco Popolare’s Stymied Bond Issue Signaling Peripheral Stress

Banco Popolare SC’s failure to sell senior unsecured bonds signals that banks in Europe’s peripheral nations aren’t out of the woods, according to Mediobanca Securities.

Italy’s fourth-biggest bank by assets yesterday postponed its sale of euro benchmark bonds as larger rival Intesa Sanpaolo SpA issued 1.25 billion euros ($1.62 billion) of seven-year notes on the busiest day for debt issuance in three weeks. European finance ministers are meeting today in Luxembourg to try to resolve the three-year old sovereign crisis that’s threatening to engulf Spain and Italy.

“BP’s failed attempt to tackle the institutional markets witnesses that the uneasy funding conditions for Italian banks are not over,” analysts at Mediobanca wrote in a note. It also “shows that funding conditions differ from bank to bank in Italy, as BP failed to issue a bond with lower maturity and higher spreads than the ISP’s successful issuance.”

Spanish and Italian banks are the worst performing credit-default swaps in financial indexes, with contracts on Banco Santander SA rising five basis points to 317 and Intesa Sanpaolo up three at 323 at 2:48 p.m. in London. Swaps on Banco Popolare, which is not in the measure, added eight basis points to 501, the first increase in six days.

Officials at Banco Popolare in Verona did not respond to two phone calls and an e-mail seeking comment.

UniCredit Issue

UniCredit Bank Austria AG also pulled a bond sale yesterday and said that it will “continue to work with investors over coming days with a view to printing a successful inaugural transaction.”

It would have been the bank’s first benchmark syndicated senior unsecured bond in euros since 2008, according to data compiled by Bloomberg.

Corporate and financial bond risk fluctuated after the International Monetary Fund cut its global growth forecasts and warned of even slower expansion.

The Markit iTraxx Europe Index of 125 banks and companies with investment-grade ratings rose one basis point to 130. The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed five basis points to 546.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell one basis point to 181 and the subordinated index decreased two to 315.

A basis point on a credit-default swap protecting 10 million euros ($12.9 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

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