October 29, 2018 / 1:08 PM / 14 days ago

Italy explores options to support banks if needed: government source

ROME (Reuters) - Italy’s economy minister is studying possible measures to support the country’s banks if needed, a government source said on Monday, in a sign of concern within the ruling coalition over the impact of rising debt yields on lenders.

Italy's Economy Minister Giovanni Tria holds a joint news conference with European Economic Commissioner Pierre Moscovici at the Treasury ministry in Rome, Italy October 18, 2018. REUTERS/Max Rossi

Italian banks, which hold about 375 billion euros ($426 billion) of Italian government bonds, have been hit by a jump in sovereign borrowing costs triggered by market fears over the coalition’s big-spending budget plans.

Prime Minister Giuseppe Conte had asked Economy Minister Giovanni Tria to prepare possible measures for helping banks if needed, the source told Reuters.

The anti-establishment 5-Star movement, which governs with the right-wing League party, is opposed to using public money to strengthen the capital of ailing banks, the source added.

5-Star is “open to providing guarantee schemes aimed at helping bank mergers”, the source said.

It was not clear what kind of state guarantees the government might be considering and whether any such measure would be in line with EU state aid rules.

Italian daily Corriere della Sera reported on Monday that the government was ready to support domestic banks with loans, state guarantees and other measures, should the spread between Italian and German government bonds hit unsustainable levels.

The 5-Star Movement came to power riding popular anger at a string of bank failures in recent years that left many Italians, who held their local lenders’ bonds and stocks, out of pocket.

Tria said on Saturday the current gap, or “spread” between yields of Italian 10-year government bonds and equivalent German paper, which has almost doubled since March, was damaging, but he added that domestic lenders were not in danger “for now”.

Italy’s four biggest banks, UniCredit (CRDI.MI), Intesa SanPaolo (ISP.MI), UBI (UBI.MI), Banco BPM (BAMI.MI) are among lenders subject to Europe-wide stress tests aimed at gauging their ability to weather an economic shock.

The results of those tests will be published on Friday.

Tria said Italian banks were solid and “can pass the capitalization tests, at least almost all of them can.”

He added that the government would intervene if a lender got into trouble, without giving details.

European Union and Italian officials discussed last week the health of Italian banks, including Banca Monte dei Paschi di Siena (BMPS.MI), two sources told Reuters.

The Tuscan bank had to be rescued by the state after failing to raise cash on the market in 2016 to fund a balance-sheet clean-up. Its efforts to bolster its financial strength have been dented by the rise in government bond yields.

Italy’s 10-year government bond yield fell to a one-week low on Monday, narrowing the gap over safer German peers, on relief that ratings agency Standard & Poor’s on Friday left the country’s credit rating unchanged.

Reporting by Giuseppe Fonte; writing by Giselda Vagnoni, editing by Gavin Jones and Alexander Smith

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