Italy Banks Lose $82 Billion of Cheap Financing From Savers

Italian savers ditched 75 billion euros ($82 billion) of bank bonds in the year ended September, further depriving lenders of a cheap source of funding.

Retail holdings of the notes tumbled 27 percent in the period to 200 billion euros, extending declines since 2012, based on Bank of Italy data released on Monday. There was a 5 billion-euro drop in the three months ended September, marking a slowdown from previous quarters.

Savers are shunning bank bonds as losses at four small lenders in November have made more people aware that the investments are risky. The cash drain has contributed to a slump in prices for junior bonds, as lenders turn to more expensive wholesale financing and contend with tighter European Union rules on state aid.

“A lot of these banks have survived better thanks to retail funding,” Alberto Gallo, head of macro-credit research at Royal Bank of Scotland Group Plc, said before the data was released. “If you take out the retail-funding channel some banks may find it more expensive to fund.”

A new EU bail-in regime, which forces lenders to impose losses on creditors before they can accept state aid, has driven declines in Italian bank bonds this year, Gallo said.

Banca Popolare di Vicenza’s 200 million euros of 9.5 percent subordinated notes due September 2025 have dropped to 74 cents on the euro from 96 cents on Dec. 31, according to data compiled by Bloomberg. Banca Monte dei Paschi di Siena SpA’s 379 million euros of 5.6 percent September 2020 bonds have fallen to 72 cents from 95 cents.

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