ROME: Italian savers slashed holdings of bank bonds to the lowest since 2000, depriving the nation’s financially pressed lenders of a source of cheap funding. Retail bank-bond investments tumbled to 187 billion euros ($212 billion) in December from 252 billion euros a year earlier, based on Bank of Italy data published Monday. That cut the notes to 29 percent of bank funding, the smallest share since 1995.
The slump is one reason Italy is having to help local banks as they struggle under bad debts and higher borrowing costs. Savers have turned against the bonds because losses at small lenders last year have fostered greater appreciation of the risk involved in investments that were once sold as high-yield savings products.
“Italy is coming into line with the rest of Europe,” said Thomas Neuhold, a fund manager at Gutmann Kapitalanlage AG, which oversees about 8 billion euros of assets. “Even as things for Italian retail bondholders improve, they won’t be buying subordinated debt in future in the way that they did.”
Retail bondholders suffered losses at four banks in November because of restructurings. That led to protests by savers, and at least one suicide. Regulators have started to discourage retail holdings of bank bonds. UniCredit SpA, Italy’s biggest bank, is buying back notes sold to retail customers and marketing new debt to institutional investors.
The nation in April helped set up the 4.25 billion-euro Atlante fund to backstop emergency cash calls by banks. That support stoked a rebound for junior bonds at financially pressed lenders, including Banca Popolare di Vicenza SCpA and Veneto Banca SpA. The government is also offering guarantees on some soured loans being sold by banks through a securitization program. That may help reduce industrywide bad debts totaling about 360 billion euros.
