EMERGENCY FUNDING:ITALY'S BANKS, led by UniCredit, were the biggest users of the special three-year funding mechanism launched by the European Central Bank in December, according to analysts.
UniCredit – Italy’s biggest bank by assets – took €12.5 billion of three-year money under the facility, followed by Intesa Sanpaolo, with €12 billion, and Monte dei Paschi di Siena, which took €10 billion, says a report from Morgan Stanley.
The data, submitted to Morgan Stanley but not previously disclosed, underlines just how reliant banks in the peripheral euro zone nations have become on emergency mechanisms put in place by the European authorities.
Banks across the euro zone periphery have been frozen out of commercial funding markets for months as investors have shied away from all but the most trusted bond issuers.
Other significant users of the ECB’s three-year facility included Royal Bank of Scotland, which tapped it for €5 billion via its Dutch subsidiary – equivalent to a quarter of its 2012 funding needs, says Morgan Stanley – and Spanish banks.
The take-up of ECB money by the big Italian banks, amounting to more than €50 billion in aggregate, means they have already covered 90 per cent of their funding needs for 2012.
Supporters of the scheme say that it has been a vital crutch to ensure the economies of the euro zone continue to function as banks reinvest the money in lending to businesses and governments. After an initial hoarding of cash, the total of €489 billion raised by 500 banks in the December auction has been put to work.
Spain and France continued the run of positive debt auctions yesterday as investors showed they still had considerable appetite for euro zone government bonds.
Madrid raised more than it had targeted for the second auction in a row as hopes rise that pressures on Spain’s borrowing costs are beginning to ease.
In a closely watched sale of benchmark 10-year bonds, as well as debt maturing in 2016 and 2019, the Spanish treasury sold €6.6 billion, well above the target range of €3.5 billion to €4.5 billion and at generally lower borrowing costs.
France also shrugged off losing its top triple-A credit rating at the end of last week and sold €8 billion of medium-term bonds at lower yields than before.
Both auctions, coming after other positive debt sales from Spain and Italy, led to rises in the euro and European shares.
Paris sold €3.4 billion in five-year bonds, €3 billion in three-year bonds and €1.6 billion in four-year debt in an auction that attracted “solid demand”.
The UK yesterday issued £4 billion of four-year bonds at a yield of just 0.893 per cent.
Bundesbank board member Andreas Dombret said financial markets were undervaluing some European government bonds and not giving enough credence to budget cuts. “Progress in the various countries can be seen, in Ireland for example, but also in Italy, where the new government is going to implement fiscal measures.” – (Copyright The Financial Times Limited 2012/Bloomberg)
