Italian banks slumped, leading a slide in lenders across Europe, after an announcement that Prime Minister Mario Monti will resign pushed up bond yields and threatened a new front in Europe’s debt crisis.
UniCredit SpA, Italy’s biggest bank, declined 21 cents, or 5.8 percent, to 3.44 euros at 12:54 p.m. in Milan trading, the biggest drop since September. Intesa Sanpaolo SpA fell 6.6 percent to 1.20 euros. The European Stoxx 600 Banks Index slid 1.7 percent to 159.52.
Monti, who has raised taxes and cut spending to help slash Italy’s borrowing costs, announced his plan to step down on Dec. 8, hours after former Prime Minister Silvio Berlusconi said he’ll run in an election next year to overturn Monti’s austerity measures. Italy's banks hold a record amount of government debt, according to the latest central bank data, and the spread for 10-year bonds over equivalent German bunds widened the most in more than four months today, increasing as much as 39 basis points to 362 points.
“Monti’s decision to resign increases uncertainty and should be short-term market negative,” Giovanni Zanni, director of European economics at Credit Suisse Securities in London, wrote in an e-mailed report today. “Clearly, though, volatility is of the essence until the elections. The situation is fluid and should remain so for some time.”
Monti is due to attend a European summit on Dec. 13-14, when the continent’s leaders will debate a road map for the overhaul of the euro area, including increased powers to intervene in national budgets.
Monte dei Paschi di Siena SpA, Italy’s third-biggest bank, declined 7 percent to 19 cents. Banco Popolare SC, Italy’s fourth largest, fell 6.9 percent to 1.06 euros.
Monti, 69, said he’ll try to corral his coalition, which includes Berlusconi’s People of Liberty Party, to pass an austerity budget that includes increases to value-added taxes.
Yields on 10-year Italian bonds surged 33 basis points to 4.86 percent, the highest level in more than two weeks. The country’s banks held a record amount of the sovereign debt in October.
Lenders in Italy have borrowed more than 280 billion euros from the European Central Bank and invested some of it in government bonds because they offer higher yields. They boosted their holdings by about 13 billion euros to 340 billion euros in October, according to a Bank of Italy report today, and by about 130 billion euros this year.
Cooperative banks such as Banco Popolare are most affected by the political tensions because of “their large portfolio of Italian government bonds and the increasing difficulties on the funding,” Milan-based broker Fidentiis Equities wrote in an e-mailed report to clients today.