December 11, 2015 / 3:22 PM / in 3 years

Worried Italians seek to sell out of bank bonds

* Italians seek to sell bank bonds after losses

* New EU rules shift burden when lenders rescued

* Many Italians have invested savings in bonds

By Elvira Pollina and Valentina Za

MILAN, Dec 11 (Reuters) - Italians rushed to try to sell their bank bonds on Friday after taking fright at losses imposed on investors in four small lenders which had to be rescued last month.

Italy rescued Banca Marche, Banca Etruria, CariChieti and CariFe at the end of November under new European Union rules that shift losses to investors when a bank runs into trouble, moving the burden from taxpayers.

Some 130,000 shareholders and holders of 790 million euros ($864 million) in junior debt saw the value of their investments wiped out. It was the first time since the 1930s that bondholders suffered losses in a banking crisis.

The suicide of a pensioner who lost money in the rescue has added to the outcry.

Retail clients have traditionally represented a steady source of funding for Italian banks which sold them their own bonds through their branch network.

Traders said on Friday that many of those small investors were frantically trying to dump bank bonds but there was no interest from institutional investors so prices kept falling.

“People in Italy are rushing to sell subordinated bank bonds,” said Giuseppe Sersale, a fund manager at Anthilia Capital.

“Retail investors scared by the protests triggered by the rescue of the four banks are trying to sell, but there is no demand for them.”

The bonds of banks such as Veneto Banca, Banca Popolare di Vicenza, Monte Paschi and Banca Carige have suffered the most, according to Alberto Gallo, Royal Bank of Scotland’s head of credit research.

“There has also been some contagion to some of the more robust banks which are likely to be retail held,” he said.

One trader said selling hit debt issued by heavyweights Intesa Sanpaolo and UniCredit, although in this case falling prices offered a buying opportunity for some institutional investors and U.S. hedge funds.

Unlisted Popolare di Vicenza and Veneto Banca will both need to raise fresh capital from investors in coming months to meet requests by the European Central Bank.

Monte Paschi and Carige were the only two Italian lenders that had to raise cash on the market as a result of last year’s health check of lenders carried out by the ECB.

Banking stocks have been under pressure in the past two weeks with shares in Carige and Monte Paschi hitting all-time lows. By 1500 GMT Carige had lost 4.8 percent and Monte Paschi 3.7 percent.

In a sign of investors’ concerns, Veneto Banca paid a high 10.5 percent yield in late November to sell a 10-year subordinated bond which priced at 97.63 percent of its face value.

The same bond on Friday traded at 88.29, down nearly 4 percentage points on the day and with a yield of 12.7 percent. (Additional reporting by Danilo Masoni and Stephen Jewkes; Editing by Keith Weir)

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