July 11, 2011 / 4:06 PM / 8 years ago

Fatbox: Italy's public debt and domestic banks' exposure

MILAN (Reuters) - Italy has one of the largest public debts in the world, which combined with anemic economic growth and domestic political uncertainty, makes the country vulnerable to contagion from the euro zone debt crisis.

The yield on 10-year Italian BTP bonds rose to 5.57 percent on Monday, the highest since May 2001 and almost three percentage points higher than for the equivalent German Bunds.

The spike in Italian bonds’ yields makes funding more expensive for Italian banks. Domestic lenders are under pressure also due to their sizeable holdings of government debt.

Following are some figures on Italian government debt and domestic banks’ exposure to it.

* Italian government bonds and short-term bills totaled 1,582.7 billion euros at the end of June according to data from the Italian Treasury. Their average life was 7.09 years.

* Italy’s public debt stood at 1,890 billion euros at the end of April, according to Bank of Italy figures. The public debt figure includes postal savings.

* Italy faces a spike in redemptions in September, when 46 billion euros of BTP/CTZ bonds will mature, Treasury data show. Between July and December of this year a total of 176 billion euros in Italian government paper will come due.

Cyril Regnat, bond strategist at Natixis in Paris, said a 1 percentage point increase in the average debt yield adds 2 billion euros to interest payments over the course of a year.

* The International Monetary Fund estimated in April that 47 percent of Italian 2010 government debt was held abroad.

* Banks resident in Italy held 192 billion euros in Italian government securities at the end of May, Bank of Italy data published on Monday show.

In the first quarter of 2011 they also held 589 billion euros in government securities on behalf of their clients.

* JP Morgan analysts estimate Italian banks’ holdings of government bonds at 6.33 percent of their assets, a higher figure than 5 percent for Spanish banks. In the euro area Italy is second only to Greece, where banks holds government debt equal to 10 percent of their assets, they said.

* Analysts estimate that an increase of one percentage point in the average cost of Italian public debt drives a similar rise in the cost of banks’ bond issues. Two analysts who requested anonymity indicated a one percentage point rise in the cost of banks’ bonds, all else being equal, would cut a bank’s earnings per share roughly by between 5 and 10 percent.

The impact is more significant for smaller banks and adds up over time. The effect of rising funding costs on 2011 profits should be minimal as banks have already met most of their funding needs.

* JP Morgan analysts said Italian banks will have to refinance 53 billion euros of bonds maturing in wholesale markets next year.

* The 600 billion euro Italian pension fund and insurance industry has increased its holdings of domestic government bonds by 10 percent in the last three years to 32 percent of assets, according to JP Morgan analysts. That is more than double the comparative figure for France, and three times that for Spain or Germany.

Reporting by Valentina Za; additional reporting by Michel Rose; Editing by Catherine Evans

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below