Italy

The European Central Bank has warned that some banks face a sharp spike in the cost of their bond funding, as the economic fallout from the coronavirus pandemic begins to translate into credit rating downgrades.

Small transactions reached big audiences in the financial institutions bond market this week, as investors realised they would need to consider buying sub-benchmark supply in order to make the most of a dwindling deal pipeline. Tyler Davies and Frank Jackman report.

Italy made a strong return to the dollar market on Tuesday with a deal over three times covered, which came following the conclusion of the sovereign’s second BTP Futura bond sale at the end of last week.

Italy’s BPER Banca was more than three times subscribed for a small tier two deal on Wednesday, as sub-benchmark transactions prove more popular than usual in the euro market.

Dollars was the flavour of the day for public sector borrowers on Tuesday as three issuers headed to the currency, raising a combined $12bn. Two more SSAs will follow with dollar deals on Wednesday.

Mediobanca was swamped with orders for a small tier two on Monday, as investors welcomed a rare opportunity to gain subordinated exposure to the Italian bank. Its deal was further supported by another positive development in the race to roll out a vaccine for Covid-19.

Italy received less interest for its second BTP Futura bond last week than its inaugural deal in the format earlier in the year.

Permanent TSB has picked banks to arrange the sale of a new additional tier one (AT1) from its holding company, a deal that could be used to replace the Irish lender's outstanding opco bond.

Italy held a series of investor calls on Thursday in preparation for a trip to the dollar bond market. Italy returned to the currency last year after almost a decade away, and announced that it intends to access the market every year.

The way the EU handles Banca Monte dei Paschi di Siena will yet again set a precedent for other struggling banks.

Banca Monte dei Paschi di Siena confirmed on Thursday that it was looking at options to strengthen its capital position, with the full support of the Italian government. Trading had already been heating up in its tier twos, as investors have been forced to consider whether a capital raise will require burden sharing under EU state aid rules.

Trading in Banca Monte dei Paschi di Siena’s tier twos has heated up this week, following reports the Italian lender is looking for a new capital raise as well as a merger deal.