LONDON Dec 23 Italian government bond yields
fell on Friday as Monte dei Paschi said it would request aid
from a newly approved state fund to help struggling banks, after
failing to win investor backing for a desperately needed capital
Ten-year yields slipped 3 basis points (bps) to 1.82 percent
in thin trading as financial centres across the
region prepared to close for Christmas holidays.
Another banking saga concluded with Germany's Deutsche Bank
agreeing to a $7.2 billion settlement with the U.S. Department
of Justice (DOJ) over toxic mortgage securities sold in the
run-up to the 2008 financial crisis, nearly half of the fine
initially levied in September.
Elsewhere on the continent, Credit Suisse agreed to pay $5.3
billion to the DOJ to settle similar charges, and Barclays
became the latest in a long-list of other lenders under
investigation to be sued.
But the central focus for financial markets was Italy where
Monte dei Paschi said it would request state aid, minutes after
the government authorised a 20-billion euro fund to help lenders
The private deal to try to save the world's oldest bank was
hampered by political turmoil after a referendum this month led
to the resignation of former Prime Minister Matteo Renzi.
With other Italian lenders looking fragile, the new
administration of Paolo Gentiloni is looking to end a protracted
banking crisis that has gummed up the economy.
"The situation in bond markets is reflecting the
developments around Italian banks and investors are taking those
well," Commerzbank strategist David Schnautz said.
The fall in Italian bond yields dragged those in
neighbouring Spain lower too, with 10-year yields dropping 3 bps
to 1.38 percent.
All other euro zone bond yields were about 1 bps lower on
Milan's stock market rose 0.7 percent but trading
in Monte dei Paschi's shares and bonds were suspended.
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Other Italian banks that may struggle to raise capital in
coming months are Banca Popolare Di Vicenza, Veneto Banca and
Banca Carige. Italy is also struggling to find a buyer for four
small banks rescued from bankruptcy a year ago: Banca Etruria,
Banca Marche, CariFerrara and CariChieti.
Researchers at Barclays said that state intervention is
unlikely to represent a systemic solution for Italy's banks,
estimating that the largest six Italian lenders could need about
30 billion euros in total to clean-up their balance sheets.
And even then, Barclays said, the government may be not be
able to apply the model elsewhere.
"Even assuming that 20 billion were to represent a
sufficient firepower to plug the hole, we doubt the decision to
deal with MPS through a public sector solution will represent a
template to be enrolled across the system quickly."
(Editing by Louise Ireland)