–Have Borrowed E203 Billion From ECB, Can Borrow E150 Billion More

ROME (MNI) – Italy’s banks are not out of the woods yet, despite
markedly more comfortable liquidity positions — thanks to the European
Central Bank — and improving market sentiment towards Italian sovereign
bonds, the Bank of Italy’s Director General Fabrizio Saccomanni said
Tuesday.

Saccomanni, in testimony to the Finance Committee of the Italian
Senate, noted that the recent three-year refinancing operation by the
ECB had produced a “significant improvement in the short-term liquidity
position” of the country’s banking sector.

Italian banks were the biggest bidders in the ECB’s three-year LTRO
on December 21, taking about E50 billion out of the E489 total loaned
out by the ECB, according to a recent study by Morgan Stanley.
Saccomanni said his country’s banks now have E203 billion in outstanding
loans from the ECB and could still borrow up to E150 billion more.

He noted that sentiment towards Italy has shifted in financial
markets. “One can see the first signs that investors are appreciating
the measures undertaken by our country in the reduced yield spreads with
German public debt,” he said. “That will bring benefits to the banks’
cost of funding, supporting their ability to finance the economy.”

Saccomanni also noted that Italian banks have made “significant
progress” in meeting new capital targets and containing costs. “The
banks’ process of capital reenforcement has been in progress for some
time and was particularly intense in 2011, spurred by the Bank of
Italy,” he said.

Despite this, however, Italian banks continue to feel the pressure
of financial market tensions and of weakness in the economy, “with
negative repercussions for their profitability,” he said. “It is
essential to reduce the markets’ perception of Italian risk and to
interrupt the perverse interaction between the sovereign spread and that
of banks.”

Saccomanni said that the possibility of public funds to help banks
recapitalize “cannot be excluded.” But if they are used, “they must be
limited and temporary; they must not aggravate the public debt and they
must [be provided] in a way that avoids interference with management of
the institution.”

Saccomanni cited the success of a recent effort by Unicredit,
Italy’s biggest bank, to raise capital, noting that after an initial
negative market reaction the E7.5 billion stock offer was fully
subscribed. He said the central bank is evaluating the capital-raising
plans of other Italian banks.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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