December 22, 2011 / 6:51 PM / 8 years ago

Italy banks almost halfway to 2012 funding needs

* Italian banks tapped 116 bln euros of ECB cash on Weds

* 42-44 pct of 2012 Italian bank funding covered-Intermonte

* UniCredit,Intesa to use cash for industry, families

By Paola Arosio and Gabriella Bruschi

MILAN, Dec 22 (Reuters) - Italy’s banks are almost halfway towards meeting their funding needs for 2012 after they tapped 116 billion euros of cheap long-term cash from the European Central Bank on Wednesday.

The ECB’s first ever offer of three-year loans on Wednesday drew heavy demand of 489 billion euros from 523 banks, raising hopes a credit crunch can be avoided and that the money could be used to buy Italian and Spanish bonds.

The ECB will follow up with another similar operation in February in a move designed to directly help banks which need to raise capital.

A study by local broker Intermonte said 42-44 percent of total Italian bank funding and 75-80 percent of wholesale funding for next year had been raised on Wednesday.

Three sources said their estimates were in the same range as that of Intermonte.

Italian lenders have been effectively shut out of wholesale debt markets because of a funding squeeze, and have increased their reliance on cheaper borrowing from the European Central Bank.

In November, ECB funding for Italian banks rose to 153 billion euros from 111 billion a month before. In June it stood at just 41 billion euros.

The euro zone banks also have about 920 billion euros of liquidity existing with the ECB which indicates Italian banks could have some 230 billion.

On top of this are funds the banks can raise through the wide range of cash operations offered by the ECB.

FUNDING BUSINESS

Italy’s two top banks UniCredit and Intesa Sanpaolo will use the new ECB three-year liquidity to help fund Italian industry and families, managers at the two lenders said in newspaper interviews on Thursday.

There is speculation that some banks will use the ECB funds not to boost the real economy but for carry trades on investment in high-yielding government bonds.

“We intend to support the real economy as far as is possible given the stiff ties imposed by EBA,” the CEO of UBI Banca Victor Massiah told Reuters.

Italian banks have 192 billion euros of domestic government bonds on their books, of which 160 billion are spread among the five top lenders.

Italy’s banks raised 116 billion euros at Wednesday’s three-year refi operation at a cost of between 1 percent and 2 percent. The cost is much less than banks would have had to pay if they had to refinance on the market.

“After the crisis grew more acute in the autumn, bank bond yields on the secondary market shot up and it would have been very difficult for the banks to turn to the capital markets,” a strategist said. (Writing by Stephen Jewkes; Editing by Jon Loades-Carter)

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