Italy

Bank of Italy officials said this week that the country’s most fragile financial institutions might struggle to cope with the economic impact of the coronavirus pandemic, raising the prospect of consolidation within the banking sector.

DCM officials have expressed surprise at the speed with which the market has adapted to working from home during the coronavirus pandemic, with issuers able to complete deals quickly and with little extra fuss.

Cassa Depositi e Prestiti pulled off a €1bn dual tranche Covid-19 response bond on Wednesday, capitalising on investors’ desire to deploy cash into coronavirus instruments to ride out a difficult market.

The Italian Treasury has updated the guidelines for its debt management strategy for 2020 as it comes to terms with additional financing needs from Covid-19. There are plans for more syndications, bigger auctions and more products for retail investors.

UniCredit has said that it will redeem €2.5bn of tier two capital next month, with regulators allowing banks to manage their debt capital stacks freely during the coronavirus crisis.

Italy is set to announce a new decree law that would allow banks to use public guarantees to cover 90%-100% of their lending.

Italy’s borrowing is set to increase as it attempts to weather the economic impact of coronavirus. But Davide Iacovoni, director general of the Italian public debt office, told GlobalCapital that he did not expect investors to abandon the country’s debt. He also called for some form of European risk sharing.

The economic shock of the coronavirus outbreak is not likely to cause a downgrade to Italy’s credit rating, according to S&P in spite of the fact that its debt to GDP ratio could climb steeply in order to fund its response.

European banks are steering well clear of new issue markets during the coronavirus pandemic, avoiding having to call on investors for funding by taking advantage of attractive central bank funding schemes.

Market participants are debating whether the EU is responding quickly and strongly enough in the coronavirus crisis, after the bloc put off the question of how to involve the European Stability Mechanism on Monday evening.

The European Union is set to make at least €25bn of budget funding available for sectors affected by the Covid-19 coronavirus, as its institutions join forces to tackle the economic impact of the outbreak. Rules on state aid and public finance will also be loosened, giving member states more room to launch fiscal stimulus measures.

Market participants are calling on European financial authorities to help banks deal with the impact of Covid-19. Forbearance could come in the shape of state guarantees or in the form of the relaxation of certain elements of bank capital requirements.