Banks to dump more Italian debt: IFR
Baku, November 12 (AZERTAC). European banks are planning to dump more of the 300 billion euros they own in Italian government debt, as they seek to pre-empt a worsening of the region`s debt crisis and avoid crippling write downs - a move that could scupper the European Central Bank`s efforts to bring down soaring yields.
Still reeling from heavy losses on money they lent to Greece, lenders are keen not to make the same mistake twice. Then, under the pressure of governments and a hope that credit default swaps would protect them against heavy losses, they held on until it was too late to sell.
With the ECB providing a bid for Italian bonds that might not otherwise exist, board members at some of Europe`s largest bank say now is the time to accelerate disposals. Many are also reversing long-standing policies of buying into new Italian bond issues, denying Rome an important base of support.
"Our traditional buying days are no longer," said one board member at a European bank, one of Italy`s 10 biggest creditors, who added that the bank has also sold off previous bond purchases. "Unless there is more certainty on Italians changing direction, it will be very tough for them to find buyers."
Banks are important creditors to Rome, having bought about 40 percent of the 22 billion euros Italy issued in euro-denominated syndicated bonds since 2009. According to the European Banking Authority, the region`s biggest 90 banks held 326 billion euros of Italian debt at the end of last year.
Many banks have since reduced their holdings, although the EBA numbers - released in July - are the most up-to-date cross-industry figures on nominal holdings. Italy`s debt load totals around 1.7 trillion euros, with more than 300 billion due to mature next year alone.
The ECB has been buying Italian bonds to keep down yields since August. Since then, the institution has bought about? 110bn of European government debt, some of which traders say is Italian debt. Most sales have been and will be on the open market.
The sheer volume of such sales will make it increasingly difficult for the ECB to keep Italian bond yields down. The yield on 10-year governments bonds surged as high as 7.5 percent this week, the most in the history of the eurozone and the highest for Italy since 1997. Selling intensified after LCH.Clearnet lifted its margin requirements on Italian debt. The 10-year Italian bonds currently trade at 85 cents on the euro.
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